While summer holidays draw to a close in Australia, much of the globe’s north is being overwhelmed by a rising tide of unresolved issues. Political, business, and civil society leaders will attempt to solve them over the course of the next week in Davos, Switzerland.
The bleak background to all this is that, as Klaus Schwab founder of the World Economic Forum (WEF) puts it, “the world is at an inflection point, the sheer number of ongoing crises calls for bold, collective action.”
The crises that will exercise the minds of the International Monetary Fund, World Trade Organization (WTO), European Central Bank, Axa, Black Rock, Philips, Siemens, and many more, along with old stagers like former United States vice-president Al Gore, are many. Some “crises” seem a little esoteric, such as “what will it take to scale sustainable aviation fuel in the next decade?” But it is worth focusing on three significant power shifts that should concern all those interested in geopolitics, and that will affect us all.
The first is that despite all the fine talk of the urgent need to fight climate change, achieve net zero in greenhouse gas emissions by 2030 or sooner, and shift to clean energy and green transport, the will to abandon fossil fuels is wilting. It is becoming increasingly clear that the targets of the Paris Accord, enhanced by COP 26 in Glasgow in November 2021, but then ignored by host chairman Boris Johnson, will not be met. Last summer was Europe’s hottest on record. For some countries, the year as a whole was the warmest on record, including France, Italy, Spain, Portugal, Ireland, and the United Kingdom. Europe’s summer temperatures have increased by more than twice the global average over the last three decades, faster than any other continent.
In America, despite major subsidies for clean energy projects successfully put through Congress by the Biden administration, the United States has continued to fall behind in its Paris targets. Greenhouse gas emissions from the world’s second-largest emitter after China increased by 1.3 percent to 5.6 billion tonnes in 2022. Under the Paris agreement, the US is supposed to reduce greenhouse gas emissions to at least 50 percent of 2005 levels by 2030. So far it has only reached 15.5 percent.
The second big issue which has emerged from Biden’s massive green subsidy program is the$369 billion for subsidies for new technologies, including factories to build everything from state-of-the-art computer chips to electric cars. This, of course, is part of a broader White House strategy, called the Inflation Bill, to compete with China to return investment and jobs back to the United States. We can expect similar action by Chairman Xi Jinping of China in short order.
But the Europeans, including the British, do not see strategic competition in the same way. While reluctant to use Trumpist phrases like “Putting America First,” they see Biden’s initiative as a full-frontal assault on their valuable manufacturing exports to the United States, particularly of new model electric autos from companies like Volkswagen, BMW, Peugeot, and Volvo. Inside the Berlaymont, the headquarters of the European Union in Brussels, there is dark talk of damage to the continent’s industrial base and an alleged breach of World Trade Organization rules. The problem for the Europeans is the WTO process is joyless and slow. It could take two years, by which time the damage will have been done.
But the biggest event – or series of events – that is reshaping the world has been taking place almost unnoticed in the Persian Gulf, as I witnessed when I returned to the region over the holiday period. As the BBC’s economics correspondent in the 1970s, I reported from there on the fourfold increase in oil prices, which led to inflation and interest rates surging to almost 20 percent in the West as Gulf kingdoms acquired what we called petrodollars. These were lavished on mansions and country estates in Europe or used to transform a dusty smugglers’ creek with a gold souk like Dubai into a modern high-rise metropolis and a mecca for tourists and shoppers. By 2008, the capital of the United Arab Emirates was a model city with green parkland and so many billions of petrodollars in its sovereign wealth funds that desperate, capital-short directors from brands like Citigroup, Barclays, Credit Suisse, and Daimler Benz sought investments to get through the global financial crisis that crippled some of their contemporaries.
But late 2022 was different. Yes, much of the world was suffering high inflation, but that was put down to the strength of the American dollar. Oil is mostly priced in US dollars, so the coffers of the oil-rich Gulf states were bulging. This was aided and abetted by the 10 percent cut in production put through by OPEC in a cartel-type deal with Russia that also led to US oil companies enjoying two record years.
So when bankers and investors turned up for the annual Abu Dhabi financial conference in the financial hub of Al Maryah in November, they found their hotels overbooked and charging double last year’s prices. Some meetings offered standing room only. It was much the same story just one hour’s flight away in the kingdom of Saudi Arabia, where Crown Prince Mohammed bin Salman hosted the so-called Dubai in the Desert conference, which this winter attracted several thousand chief executives, including 600 from the US.
What is new this year is that Prince Salman and the leaders of greatly expanded sovereign wealth funds in Abu Dhabi and LPG-rich Qatar seem less interested in projecting soft power or buying homes in London and Paris than building strategic investments overseas and new infrastructure and technology in their countries. Salman seeks to commit billions of dollars to the public sector, with a railway linking the Red Sea and the Persian Gulf port, while commercial ventures include a major property scheme similar to Dubai’s Palm Island, which has been a big draw for rich Russians, thousands of whom have moved to the emirate since the invasion of Ukraine. None of the Gulf OPEC countries have sanctioned Russia, and trade flows freely with Dubai shipowners providing tankers to freight Russian oil to India.
The busiest activity at the moment involves overseas companies from Europe, the US, and Asia pitching the multibillion-dollar sovereign wealth funds for investment, or manufacturers seeking partners in the region to build electric car plants or an aircraft leasing company. Few people anticipated that the billions of dollars needed to grow economies out of recession would come from a fossil fuel industry that is supposed to be in decline.
Colin Chapman is a writer, broadcaster, and public speaker, who specialises in geopolitics, international economics, and global media issues. He is a former president of AIIA NSW and was appointed a fellow of the AIIA in 2017.