Billionaire investor and philanthropist George Soros In an interview to the BBC, billionaire investor and philanthropist George Soros shared his opinions on what is going on in the Middle East and North Africa these last several weeks:

Citizens of oil producing nations must see more benefit from their country’s national resources, billionaire investor George Soros has told the BBC.

Revolts in Libya were partly the result of “revulsion against a corruption” fed by the misuse of oil money, he added.

More “transparency and accountability” was needed from other producers such as Russia and Saudi Arabia he said.

Mr Soros also predicted the Iranian regime would be overthrown in the “bloodiest of the revolutions”.

There is more on the BBC site, including criticism of the US and Europe for failing to get in front of this wave of revolutions in order to gain the goodwill of new democracies that are going through their birth pains at this time.

Soros’ observations are in broad agreement with the last couple of posts here, namely Oil Exports, Popular Unrest and Population Appeasement and The Freedom Virus.

However there is one detail which is missing from all of these posts. In a way, the kleptocrats have been sharing a little of the oil money with their populations as Soros recommends, in the form of subsidies. Many of these nations experiencing unrest have for decades been employing budget-busting subsidies for food and fuel as the centrepiece of their dictators’ strategy for population appeasement. In a broad sense, what might have passed for a social contract before the “Arab Spring” was “bread and fuel in exchange for freedoms surrendered”.

Here’s the rub: the high oil and food prices of the last few years and the financial crisis have led to efforts to reform (i.e. reduce) these subsidies, and presumably those efforts together with the frustrations and aspirations of a new generation have left the old “social contract” in tatters. Which means that the efforts for subsidy reform amount to, for the moment, political suicide. Syria’s Bashir al-Assad, known as a shrewd operator, immediately reversed course on the ongoing effort of subsidy reform in mid-January right after Tunisia’s President fled his country. Next up was Saudi Arabia’s King Abdullah, who showered $36 billion of gifts onto his population shortly after the ouster of Hosni Mubarak in Egypt.

Whatever happens with the ongoing wave of unrest, whether regime change is achieved or not in each particular country, the prospect of energy subsidy reforms in MENA oil producing nations is now retreating from the horizon of what is politically possible. As a result, the price signals of expensive oil shall continue to remain muted for the millions of consumers in most MENA oil producing countries. And so oil producing countries shall continue the exponential growth of their own consumption, which depresses the volumes available for net exports, which adds to the upward pressure in the price of oil, in a positive (amplifying) feedback. This in fact is exactly what has happened to Saudi Arabia and other OPEC oil producers over the last several years, as we can see from the following two graphs:

Figure 1: Non-OECD Oil Demand Relative to Year 2000. Graph credit: Rune Likvern for The Oil Drum

Notice in Figure 1 above the OPEC demand increasing by more than 2 million barrels per day over the decade, which reduced quantities of oil available for export (see Figure 2 below), and also notice the rising demand for oil imports particularly from China and India, which presumably drove the price signal, also visible in Figure 2 below.

Figure 2: A Tale of Two Saudi Arabias. Net Oil Exports rose from 2002 to 2005 in line with oil prices, and then peaked in 2005 at 9.1 million barrels per day. Since then, oil prices have trended upwards, while Saudi net oil exports trended downwards, currently standing at 7.4 million barrels per day.

Figure 2 clearly shows that up to 2005, Saudi Arabia did expand net oil exports in response to rising demand as signaled by the oil price. Since 2005, it has been unable to expand net oil exports despite the rising oil price. Notice the deliberately chosen word “unable” and not “unwilling”. The world economy clearly cannot afford these oil prices and has long since started to develop renewable energy alternatives, two precursors of short- and long-term demand destruction which had in the past always triggered OPEC output expansions. For more proof that they are unable rather than unwilling, about a month ago Saudi oil Minister Al-Naimi has all but admitted that the decline in net exports is an involuntary problem that the Kingdom is attempting to solve with new initiatives to capture and use renewable energy. Still more proof lies in the Wikileaked assessments of the US Embassy in Riyadh that the Saudis can’t pump more oil to hold down the prices dating from November 2007, fears confirmed by gaffe-prone President George W. Bush who in January 2008 questioned the Saudi ability to raise oil supply, a sentiment that Saudi insiders appeared to share in Figure 3:

Figure 3: The main stock market index in Saudi Arabia shows unbridled optimism pre-2005 followed by a spectacular price collapse post- 2005.

One of my very first posts here from last August related to the sudden failure of complex systems and was titled Avalanches of Sand:

Academics have studied failures of complex systems with interesting results. One of the experiments they did will be familiar to anyone who has ever played with sand-castles as a child. Build a sand pile by gradually adding grains of sand. After a while, avalanches start to run down your pile. Sometimes they are minor, while other times they affect the whole pile.

I won’t go through the logic of the whole Avalanches of Sand post – I will just skip straight to its punchline: for avalanches to affect the whole pile, the builder must have carefully deposited his grains of sand on every available gentle slope up to the point where all sides of the pile have become too steep to accommodate that last grain of sand. Then the last grain of sand – the proverbial “straw that broke the camel’s back” – is likely to trigger a big chain of avalanches, significantly altering the nature of the pile in a very short period of time.

From Ponzi finance, to greenhouse gases inducing climate change, to unsustainable dependence on rapidly depleting stocks of natural resources, this is exactly what humanity is doing to itself, to civilization and to the planet: in pursuit of “stable, infinite growth on a finite planet” (!) we are collectively and unconsciously shifting pressure from one complex system to another with the primary objective of maintaining or restarting “growth”. This “growth” can go on until we have placed the last grain of sand on the last system that is not yet overloaded, at which point the avalanche will start to run down the entire sand pile. That is the point of sudden transformation: the end of one era and the beginning of another.

Of course the notion of a single “builder” carefully placing the last grain is a theoretical model and in practice the chaotic piling-on by humanity has been triggering small avalanches here and there, with increasing frequency of late. By definition, every time we stop a small avalanche before it can bring down the whole pile, the solutions to the problem of keeping up the growth of the sand pile become more and more complex and more and more precarious, as discussed in The Evolution of Complexity in Human Societies. The prognosis, if the collapses of past civilizations which grappled with the same issues in the past are anything to go by, is not good.

And so, to come back to George Soros’ commendable call that oil producing nations must do a better job of fairly and transparently sharing their wealth with their citizens. It seems to me that the much larger question is whether by now this is academic, from the point of view of averting a serious global economic dislocation. No matter how oil producing nations share their wealth with their citizens, whether with subsidies or with rising standards of living, exponentially rising domestic consumption in oil exporting nations appears to be a given, and so Net Oil Exports Will Fall to Zero Long Before Oil Production Does. Which will of course pose a much greater challenge for the citizens of the 164 countries which are net oil importers, whether or not the citizens of the (currently) 44 exporting countries that George Soros was referring to are henceforth allowed to enjoy a bigger share of their oil wealth.