Question

How does geopolitical factors affect international business?

Answer 1

The authors claim that the Obama Administration used the so-called “shale gas revolution” to halt (at least partially) the process of de-industrialization of the country, which was a result of a structural crisis of its economy. While the advocates of liberalism claim that the market itself is capable of regulating the economic development, and the state should remain only a watchdog in this process both on the national and international level, the authors prove them wrong by analyzing the crisis of highly industrialized American economy, caused primarily by emergence of the rapidly developing IT-sector. After these two structures engaged in complex relations of dualism and confrontation, the need for strengthening the regulatory role of the state became evident. The U.S. government was unable to anticipate the crisis: it had been encouraging corporations to invest abroad, in a naive belief that it would strengthen the U.S. dominance in the world economy. Quite on the contrary, the IT outsourcing mechanism, which involved hiding the real profit from the American taxation and investing it into assets that considerably lost in value during the crisis, seriously damaged the American economy. While the Democratic Party’s relations with the oil-gas business were far from sympathetic (members of the Party have been standing for development of renewable energy and sustainable development for a long time), the Republicans advocated development of non-traditional oil-gas deposits (shale ones primarily). The corresponding amendments were supported by D. Cheney and passed through the Congress in 2005. This may be the reason why in his annual State of the Union address President Obama underlined the transitional character of the “shale revolution” and labeled it a “bridge” to the renewable energy strategy. Beginning of this “revolution” which “was to migrate all over the world” was announced by the Americans publicly at the International Gas Forum in Argentina (2009). In fact, no such “revolution” in the scientific sense of the term existed; it was rather decision of the Obama Administration to artificially create conditions for “cheapness” of shale gas on the domestic market, to stimulate business with subsidies and other incentives – combining it with a strict control of the U.S. Department of Energy and other government agencies in order to control, dispense and simply to delay the issuance of licenses for the construction of the export terminals, since a massive liberalization of exports could trigger an increase in domestic gas prices. The term “revolution” in this regard was used as a mechanism of pure propaganda, designed for the public and, first of all, for the competitors. It lacks any significant feature of a “revolution”: neither an original product but the same methane and oil, nor any qualitative breakthroughs in mining techniques: the two traditional long-known mining technologies were applied, namely the horizontal drilling and the hydraulic fracturing of formation. However, the process seriously damages the ecology: it is followed by environmental pollution, and in some cases, earthquakes and poisoning of the drinking water. Moreover, the costs of drilling shale wells are 5‑15 times higher than of the traditional ones; comparison in the recovery factor favors the traditional wells as well. The authors claim that Obama was bluffing in saying that the United States was ready to supply Europe with a significant quantity of shale gas. Advocates of U.S. hegemony, in the opinion of the researchers, would like to use the decline in oil prices as an instrument of pressure on Russia, so that it would no longer be an obstacle in their attempt to restore their world dominance. The image of the United States, until recently the undisputed world leader, has considerably deteriorated, and the nation has turned into the world’s biggest debtor stooping under the weight of all conceivable deficits. Washington apparently overlooked the obvious fact that globalization and the use of energy prices as an economic weapon can hit back like a boomerang. The authors argue that the key factor affecting pricing in the global energy industry is currently geopolitics, and the main “volcano” of turbulence on world markets is the United States of America.