Two decades from now, Canadians will be living in a very different world. On the international scene, the advance of climate change coupled with a rising China and an irredentist Russia will leave Canada’s Arctic region — where possibly one quarter of the world’s oil reserves are located — vulnerable. As the Northwest Passage continues to thaw, China’s eyes remain firmly set on this major choke point in the international shipping system while Russia will need to maximize its natural resource advantage if it wishes to win over the regimes and peoples of Eastern Europe, Central Asia and the Middle East.
The rise of a more multi-polar, unpredictable world will coincide with the advent of a demographic crisis in Canada in which the share of Canada’s population over the age of 65 will increase to 25 per cent from 12 per cent over the next two decades. To give an idea of the size of the potential chronic fiscal shortfall associated with this demographic shift, the C.D. Howe Institute’s president, Bill Robson, estimates that in order to support our pension and health care systems (and other related costs) — without implementing significant reforms to the programs in question — the Canadian government would have to find a way to double the revenue it receives from income tax.
Given these geo-political and demographic projections, without any change in strategy Canada may well be on its way to becoming the economic basket case it once was. Stephen Harper’s lackluster performance on the world stage with respect to the climate change file, his refusal to provide a vision for reforming health care due to his rigid interpretation of the constitution, and his inability to articulate a coherent rationale for what could be the second-largest procurement project in Canada’s history — the F-35 Joint Strike Fighters — don’t make the picture any rosier. The major initiatives for dealing with the crisis ahead must be embarked upon in this decade, before the crisis actually hits.
It gets worse. The price of oil is about to collapse due to the increasing extraction of unconventional oil. Roughly 250 billion barrels of oil shale — and possibly as much as twice that figure — have been discovered in Israel and will begin to flow into the global market in about a decade at an estimated $30-40 per barrel, merely one third of the current price of oil. This gives Israel the third largest oil shale reserves in the world after the United States and China. The U.S. has already become a net exporter of gasoline and could surpass both Russia and Saudi Arabia as the world’s largest supplier of oil in the near future thanks to its unconventional oil reserves.
The upcoming decline in the price of oil will result in the near-total collapse of non-diversified economies, such as the Middle East’s oil-exporting countries. For instance, roughly 75 per cent of Saudi Arabia’s governmental revenue and 90 per cent of its export earnings come from the oil industry. Natural gas doesn’t provide these Mid-East states with much solace: Canadian exports of natural gas to the United States last year alone accounted for half the rate of all natural gas exports from the Middle East and North Africa.
Many would argue that the economic collapse — possibly followed by the political collapse — of regimes that oppress their people and promote radical ideologies is something to be celebrated, although the alternative to these regimes is not always an entity more inclined to advance human rights and international security (e.g., the rise of Islamist parties in Egypt following the downfall of President Hosni Mubarak).
Canada’s economy — clearly more diversified than those of Middle Eastern states — is not on the verge of total collapse. However, the drop in global oil prices that will set in over the next two decades will deprive Canada’s government of revenue at a time when we will need it the most.
Canada likely has three options — which could be pursued simultaneously — to neutralize the consequences of the looming decline in oil prices: continentalism, bet-hedging and further diversification of our domestic economy.
Continentalism was the approach taken by the Harper government over the course of its first six years in power, namely the pursuit of economic prosperity through dependence on the United States alone. In the Canada-U.S. bilateral relationship, America has historically accounted for the defense of both countries while Canada has provided most of the natural resources. However, as the U.S. moves to develop its unconventional oil reserves and continues the process of hydraulic fracturing — also known as fracking — that has turned it into a net natural gas exporter, America’s dependence on Canada may become increasingly limited to water and lumber. In other words, pursuing a continentalist strategy without advancing the other two options means surrendering more autonomy to a superpower in relative decline.
Bet-hedging, the doctrine more or less advanced by Harper as of his recent visit to Beijing, would entail two parts: 1) in order to maintain Canada’s relative autonomy, a diversification of trade partners which included increased export of petroleum to markets other than the United States; and 2) although Stephen Harper isn’t necessarily counting on it or even hoping for it, it is worth noting that a war in the Middle East in which Iran closes the Strait of Hormuz — through which one fifth of the global oil trade passes — would result in a spike in oil prices and would hence benefit Canada’s fiscal house temporarily. Canada could pocket the additional revenue and increase its relative position vis-à-vis the European and Asian markets which would be far more negatively affected by the closure of the strait than would be Canada.
Further economic diversification would prove the most difficult to enact, yet could bear the most fruit over the long run. It is upon this topic that my next column will touch.
Original Article
Source: ipolitics
Author: Zach Paikin
The rise of a more multi-polar, unpredictable world will coincide with the advent of a demographic crisis in Canada in which the share of Canada’s population over the age of 65 will increase to 25 per cent from 12 per cent over the next two decades. To give an idea of the size of the potential chronic fiscal shortfall associated with this demographic shift, the C.D. Howe Institute’s president, Bill Robson, estimates that in order to support our pension and health care systems (and other related costs) — without implementing significant reforms to the programs in question — the Canadian government would have to find a way to double the revenue it receives from income tax.
Given these geo-political and demographic projections, without any change in strategy Canada may well be on its way to becoming the economic basket case it once was. Stephen Harper’s lackluster performance on the world stage with respect to the climate change file, his refusal to provide a vision for reforming health care due to his rigid interpretation of the constitution, and his inability to articulate a coherent rationale for what could be the second-largest procurement project in Canada’s history — the F-35 Joint Strike Fighters — don’t make the picture any rosier. The major initiatives for dealing with the crisis ahead must be embarked upon in this decade, before the crisis actually hits.
It gets worse. The price of oil is about to collapse due to the increasing extraction of unconventional oil. Roughly 250 billion barrels of oil shale — and possibly as much as twice that figure — have been discovered in Israel and will begin to flow into the global market in about a decade at an estimated $30-40 per barrel, merely one third of the current price of oil. This gives Israel the third largest oil shale reserves in the world after the United States and China. The U.S. has already become a net exporter of gasoline and could surpass both Russia and Saudi Arabia as the world’s largest supplier of oil in the near future thanks to its unconventional oil reserves.
The upcoming decline in the price of oil will result in the near-total collapse of non-diversified economies, such as the Middle East’s oil-exporting countries. For instance, roughly 75 per cent of Saudi Arabia’s governmental revenue and 90 per cent of its export earnings come from the oil industry. Natural gas doesn’t provide these Mid-East states with much solace: Canadian exports of natural gas to the United States last year alone accounted for half the rate of all natural gas exports from the Middle East and North Africa.
Many would argue that the economic collapse — possibly followed by the political collapse — of regimes that oppress their people and promote radical ideologies is something to be celebrated, although the alternative to these regimes is not always an entity more inclined to advance human rights and international security (e.g., the rise of Islamist parties in Egypt following the downfall of President Hosni Mubarak).
Canada’s economy — clearly more diversified than those of Middle Eastern states — is not on the verge of total collapse. However, the drop in global oil prices that will set in over the next two decades will deprive Canada’s government of revenue at a time when we will need it the most.
Canada likely has three options — which could be pursued simultaneously — to neutralize the consequences of the looming decline in oil prices: continentalism, bet-hedging and further diversification of our domestic economy.
Continentalism was the approach taken by the Harper government over the course of its first six years in power, namely the pursuit of economic prosperity through dependence on the United States alone. In the Canada-U.S. bilateral relationship, America has historically accounted for the defense of both countries while Canada has provided most of the natural resources. However, as the U.S. moves to develop its unconventional oil reserves and continues the process of hydraulic fracturing — also known as fracking — that has turned it into a net natural gas exporter, America’s dependence on Canada may become increasingly limited to water and lumber. In other words, pursuing a continentalist strategy without advancing the other two options means surrendering more autonomy to a superpower in relative decline.
Bet-hedging, the doctrine more or less advanced by Harper as of his recent visit to Beijing, would entail two parts: 1) in order to maintain Canada’s relative autonomy, a diversification of trade partners which included increased export of petroleum to markets other than the United States; and 2) although Stephen Harper isn’t necessarily counting on it or even hoping for it, it is worth noting that a war in the Middle East in which Iran closes the Strait of Hormuz — through which one fifth of the global oil trade passes — would result in a spike in oil prices and would hence benefit Canada’s fiscal house temporarily. Canada could pocket the additional revenue and increase its relative position vis-à-vis the European and Asian markets which would be far more negatively affected by the closure of the strait than would be Canada.
Further economic diversification would prove the most difficult to enact, yet could bear the most fruit over the long run. It is upon this topic that my next column will touch.
Original Article
Source: ipolitics
Author: Zach Paikin
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