The 8 most disruptive events of 2012

Image: AP Photo/Hassan Ammar
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Spoiler alert: it was a big year for energy.

1. Tight oil supply: the beginning of the end

For Saudi Arabia, 2012 marked a year of growing apprehension as a frightening trend emerged: that by the end of the decade, according to mid-range forecasts, two new hyper-producers—Iraq and the US—will be pumping some 14 million barrels of oil a day, a 58% jump from today’s production levels. And that’s not even counting Iran, which is also likely to have resumed full-tilt production, churning out 4 million barrels per day (bpd), an increase of 1.3 million bpd from current production. All in all, OPEC will have much less influence over a world awash in oil.

Here’s the money statistic: 9 million bpd. That’s the industry’s spare capacity—meaning, the ready surplus it can pump from the ground in a pinch—projected for 2020. Spare capacity is also the decisive factor in oil and gasoline prices. And at more than four times today’s levels, those 9 million barrels will form the greatest supply cushion since oil prices collapsed in the 1980s.

Beginning in the 1970s, Saudi Arabia has played OPEC’s traffic cop in an effort to both maintain price stability and protect the cartel’s pivotal place in the global economy. More recently, the Saudis have sought to accomplish this by regulating supply, taking advantage of their own spare-capacity range of about 2 million bpd.

In order to accommodate the new US-Iraqi-Iran oil volumes, though, the Saudis would have to slash their production by a whopping 30% by 2020, says PFC Energy’s Jamie Webster, driving output to less than 6 million bpd, from about 9.6 million bpd today. Webster dismisses this possibility. “An agreement will need to be reached or you have the potential for substantial price declines on the order of the mid-’90s price war [when the price of oil dropped to $8 a barrel],” he says. “OPEC members will need to share the pain.”

The Saudis’ bad news is good news for those of us who are consumers, at least when it comes to price volatility. Generous spare capacity means geopolitics will, for the most part, cease to drive oil prices. That’s not to say there won’t be the occasional hiccup—“the Strait of Hormuz will always be the Strait of Hormuz,” says Webster—but the last decade’s dramatic price swings will be history. (AP Photo/Hassan Ammar)

2. Hurricane Sandy

Tornadoes, hurricanes, typhoons, climate change
A bigger, meaner twister
Image: AP Photo/Orlin Wagner

The Atlantic Ocean kept hitting headlines this year—in fact, since 1851, only two years have seen more tropical storms roil its chilly waters. To be fair, 2012 made a hat trick for the Atlantic, since, for three consecutive years, 19 tropical storms have struck the Atlantic—the third-highest number in recent history, just under 2005 (28) and 1933 (21).

But numbers aren’t what set 2012 apart. That real distinction falls to just one storm, Hurricane Sandy, which engulfed the world’s financial center, along the way claiming the lives of some 253 people in seven nations and causing about $65 billion in damage. Granted, a far worse storm—Typhoon Bopha—subsequently struck the Philippines, killing at least 1,000 people. But Sandy’s legacy is more than mere tragedy. It also epitomized the growing extremity of weather attributed in large part to climate change—creating storms so potent that they can devastate the developed and developing world with equal brutality. (AP Photo/Orlin Wagner)

3. Big Oil and Kurdistan autonomy

Kurdistan oil, Talabani, Barzani
Turning the taps toward independence
Image: AP Photo/Safin Hamed, Pool

Since the Gulf War two decades ago, outside support for Kurdistan’s autonomy has been an almost exclusively humanitarian affair. That is, Saddam Hussein’s gassing of the Kurds in 1988 drummed up foreign sympathy that was inflamed by then-President George H.W. Bush’s declining to defend them, despite having encouraged their 1991 uprising against Saddam.

No longer. In 2012, Iraqi Kurds made a significant move toward wresting genuine political and economic autonomy from Baghdad’s grasp. The key? Shrewd deals with the world’s largest oil companies, and the backing—at least so far—of neighboring Turkey. The Kurds achieved this Turkish entente through negotiations seeking the construction of oil and natural gas pipelines connecting Kurdistan to export markets via Turkey, and therefore outside of Baghdad’s control. So far, the discussions seem advanced. If talks succeed, the partnership will be a masterstroke of geopolitical and business savvy.

What’s more, this oil-led creation of effective independence has no precedent. While oil companies have a storied history of fomenting coups and backing nefarious dictators, they have never acted in a way that created a de facto self-governing state. Of course, Baghdad is now protesting to Ankara. Washington, too, opposes Turkey’s regional politics, as the Obama Administration worries about the breakup of Iraq, and more local violence, that might result. But thanks to Kurdish stealth and dexterity, such handwringing may come too late. Watch now for other beleaguered ethnic minorities with resource wealth, who may perceive an object lesson.

4. US presidential election goads on the global shale juggernaut

Barack Obama, shale gas, shale oil, hydraulic fracturing, fracking
Obama’s shale conversion
Image: AP Photo/Ross D. Franklin

The energy industry threw itself into the 2012 race to unseat President Barack Obama, contributing far more than usual in campaign contributions. Against such firepower, Obama—who had positioned himself as one of the great environmental presidents of modern times (the others being Theodore Roosevelt and Jimmy Carter)—adopted a new role: the shale-gas president.

Obama started out the year with a surprising state-of-the-union address that trumpeted shale’s potential for job creation, and followed up in the summer by streamlining regulation of hydraulic fracturing. The president’s shift suggests that, unlike France and Bulgaria, the US will not choke off fracking. Hence, shale’s march on the global economy will go on. (AP Photo/Ross D. Franklin)

5. East Africa’s new day dawns

Humanitarian aid in Somalia
Will Somalia see its fortunes turn?
Image: AP Photo/Jerome Delay

The recent discovery of a fresh natural gas field offshore of Mozambique capped a banner year for the East African nation: of the five largest hydrocarbon finds in 2012, it boasts four. All in all, the discoveries mean that oil companies have now found the recoverable gas equivalent of roughly 15 billion barrels of oil in the waters off Mozambique.

And there’s more. Just north, a string of finds this year brought Tanzania’s recoverable gas total to the equivalent of 6 billion barrels of oil. Still further up the coast, big oil and gas discoveries were also made, both onshore and offshore, in Kenya. All of the region seems to be part of the bonanza—next year, oil companies will drill in both Ethiopia and Somalia. It’s not all straightforward from there, though: the next step is getting the development right, which can be tricky. Uganda, for instance, is already mired in corruption and bureaucratic delays without even having produced a single barrel of oil. (AP Photo/Jerome Delay)

6. China’s territorial ambitions make waves

Senaku island dispute, Japan, China, Diaoyu
Outrage in Japan
Image: AP Photo/Itsuo Inouye

Geopolitical brinksmanship in the South and East China Seas is not new—China, Japan, the Philippines and Vietnam have been tussling over the island-filled (and, it is thought, hydrocarbon-laden) waters for decades. But even in an unusually turbulent year for China—which included corruption, murder and high-stakes politics—bitter territorial disputes repeatedly emerged as flashpoints. In September, Japan bought the disputed Senkaku Islands, a special point of friction between Tokyo and Beijing (recall 2010, when Japan arrested an errant Chinese trawler captain, and Beijing retaliated by freezing Japan’s access to its rare earth minerals). Then in December, a Chinese fishing boat cut seismic cables being used by an oil exploration vessel near the Gulf of Tonkin, upsetting both Vietnam and India, the latter of whose companies are exploring Vietnamese waters as well. Some blame China’s territorial activism on tension surrounding the country’s once-a-decade changing of the government guard, suggesting that tempers will subside to their usual half-boil within the coming year. However, when set against the backdrop of regional positioning, along with the much-discussed US strategic “pivot” toward Asia, this flexing of China’s naval muscle could well be the “new normal.” (AP Photo/Itsuo Inouye)

7. Syria inflames geopolitical risk

Opposition to Bashar al-Assad
Hands up against Assad
Image: AP Photo/Manu Brabo

The death toll in the 20-month-old Syrian civil war surged in 2012: while about 5,000 people died in 2011, the war claimed more than 40,000 lives this year, according to monitoring groups. The horror hasn’t gone unnoticed—as of December, more than 100 countries recognized Syria’s opposition coalition, chipping away at President Bashar al-Assad’s ability to maneuver. The president now relies almost entirely on just two nations, Iran and Russia, for outside support. The trend of the Arab Spring—of one strongman ruler falling after another—rubbed up against broader world history of dictators managing to hang on for a long time. But even if Assad left tomorrow, Syria’s death toll would likely continue—and would possibly rise even more. An internecine struggle is likely to erupt among the Sunni, Alawite and Christian forces, not to mention the country’s Kurds, all of whom will vie for power in a leadership vacuum that could draw neighboring countries into the conflict. Set square in the midst of the biggest petroleum producers of the Middle East, the Syrian chaos rattled global oil prices, and alarmed neighbors such as Saudi Arabia, concerned about the spread of instability. (AP Photo/Manu Brabo)

8. North Korea fires a missile

North Korean missile, satellite
Not going to California
Image: AP Photo

The hermit kingdom’s first successful satellite launch marks the only non-energy-related disruption to make the list. After numerous failures, North Korea sent up an intercontinental ballistic missile—one whose range happened to be long enough to strike the US West Coast—and deployed a satellite into space at last. Although leader Kim Jung-un and the older clique behind him say they are not aiming to threaten the US or any other state, the successful launch realized North Korea’s long-standing eagerness to prove that it can. But beyond some slightly menacing showboating to establish street cred, Kim and company’s actual accomplishments with the maneuver proved tough to pin down. Some analysts saw it as a marketing campaign for potential missile sales abroad—though, considering the vigilance of sanctions monitors, one doomed to failure.

Regardless of Kim’s intentions, the launch didn’t go unnoticed in South Korea, whose voters just sent a new president, Park Geun-hye, to office. The daughter of former South Korean dictator Park Chung-hee, the president-elect has said she will negotiate with and offer aid to Kim—but only after he renounces nuclear weapons. That is improbable. But talks are, increasingly, not. (AP Photo)