STRATFOR CEO George Friedman examines the financial and strategic issues Japan faces, the future of the nuclear industry, and the prospects of Saudi Arabia increasing its oil output.
Colin: Japan seems devastated and vulnerable. Key nuclear plants are out of action, making it even more dependent on oil from the Persian Gulf, where there’s much uncertainty. There’s a capital requirement of hundreds of billions of dollars in a country that is plagued with slow growth and debt. So what now for Japan, for nuclear power and for oil supplies?
Welcome to Agenda today with George Friedman. George, Japan is also America’s main ally in the Asia-Pacific region. Leaving aside humanitarian aid, what steps would you expect theUnited States to take in support of its friend at a time of devastation?
George: Well firstly, you used the word devastated. I think that’s a vast overstatement to what’s happened in Japan. It has had in the northeast a significant earthquake; it has caused damages other earthquakes do and more than most; certainly several nuclear plants have gone off-line and seem to be very dangerous at the moment. But devastated maybe something we can say the future; it is not something we can say now. And I think it’s really important to keep that in perspective. It’s a dangerous situation. It is an unprecedented situation, and it may devastate Japan. But at this point we haven’t had that. As for what the United States can do for Japan, the answer is relatively little. The United States has no more capability of dealing with these nuclear reactors than the Japanese does. The Japanese are superb engineers. They will have to deal their roads, their bridges that have been destroyed. These are all things that the Japanese have to do themselves. One of the questions of the Japanese will be food supplies. Will they be able to bring the food into the city depending on the condition of roadways and so on. And the United Statesmay be able to have some help there but I don’t think they really need it there. And this is really one of the important things: while we all focused on the effect of the nuclear plants, which is not trivial by any means, it’s quite significant. Remember Japan was shaken by a 9.0 earthquake and the really important question that we have to deal with is infrastructure. What’s happened to the bridges? What’s happened to the railroads? How long will it take to repair them? What’s happened to the food supply? What’s happened to storage bunkers? What are the ports like? These are the things we really have to ask about Japan in addition to the nuclear issue.
Colin: Japan now faces a shortfall in energy with the loss of significant nuclear power capacity, and in terms of oil, at least, is heavily dependent on the Persian Gulf.
George: The Japanese import virtually all raw materials they use in their industry. They import oil for example from the Persian Gulf, coal from Australia and other places. They have used nuclear power as their safety net, as the one thing that was under their control because they’ve been able to import enough uranium to back up what they need. The Japanese now have to face the fact of their vulnerability. Because in the Persian Gulf you have Bahrain exploding, you have unrest in several other countries. There is a reasonable question about how secure Japanese access is to the oil of the Persian Gulf. And they’ve lost the certainty of their backup system, their nuclear power. They’ve lost certainty of having all of it. They’ve also raised some questions about its safety. This has had a psychic impact on the Japanese, increasing their sense of vulnerability in this world they haven’t had for a while. And so I think they will be able to handle the physical shortfalls somewhat better than they’re going to handle the psychic shortfalls. In other words, they are going to have been sometime reconsidering just how safe they are in this world.
Colin: We know the Japanese are a resolute people. The old Japanese proverb: Fall down seven times and get up eight. They’ll recover, but rebuilding the infrastructure will be a hugecost, and this for an economy that is fairly stagnant and riddled with debt.
George: The Japanese is an extraordinarily wealthy nation. Their net worth is out of sight. The idea of Japan needing to get aid from foreign countries in terms of financials is fairly far-fetched. Certainly they have a debt problem, but you know that debt problem is an endemic one and a long-term one. They have a problem of repairing their infrastructure. It’ll cost something; they’ll pay for it. No matter what the cost is, they’re going to bear it, whether they bear it by increased taxes, printing more money, borrowing on international markets. But they’re certainly are not going to be in the position that they’re going to be needingforeign aid anytime soon.
Colin: The critics of nuclear have had a field day. But almost as noisy have been its devotees, who don’t seem to think that the events of the last week are much of a deterrent to a continued expansion of this so-called clean form of energy.
George: Here are the facts. The countries that have built nuclear power plants are not going to be able to shut them down because they can’t. If they shut them down en masse, particularly countries like France, they’re going to have a terrific shortfall of energy, and their economic devastation is going to be substantial. So the idea that we’re going to shut down our nuclear power plants is just not going to happen. We may shut down some in some particularly vulnerable position in earthquakes, but that’ll be from political reasons.
The thing to understand about this entire thing of course is how many people are in nuclear power. And how the first issue is, in the United States for example, there is some inCalifornia and nuclear faults, and the discussion is shutting it down. Because in the end, the extreme critics of it are not simply saying that we should not build any more their same. They’re saying we should shut down the ones we have. That’s not going to happen. As for those who say that this should have no impact on plants we’re building, that’s also not going to happen from a political point of view. Whatever the engineering, whatever the principles, politically it’s going to become extremely difficult to make the case that we should base a strategy of energy independence from fossil fuels primarily on nuclear. It’s going to be very difficult. People are not going to want to have it built near them. This is a reminder that this could fail and it’s certainly true that no one has died yet from it. It’s also certainly true that other forms of energy are more dangerous in some ways, and it’s also certainly true that all that doesn’t matter. The psychological structure we have right now is going to do two things. We’re not going to be shutting down a lot of power plants. It’s going to be very difficult to get them approved. The political process has now shifted as it shifted afterChernobyl.
Colin: With oil prices up, and oil in demand, the Saudis hold the key. They could pump more oil. Will they?
George: There’s no question that they’re under pressure to pump more oil, they have to. Their primary tool in maintaining social stability is spreading cash around, making sure that everybody is satisfied with the royal family and with the government. To do that they need to pump more oil. So do the other oil-rich states that have had instability. The real question, however, is not whether the Saudis want to pump oil; the real question is going to be whether the Iranians will give them the breathing room to do so, or will they block the straits of Hormuz, or do something else that’s unpredictable at this time. We’re in a showdown between Saudi Arabia and Iran, and that is a serious problem. Oddly in the same time the Japanese are dealing with their nuclear meltdown, their fear is a political meltdown in thePersian Gulf that they can’t control.
Colin: George Friedman, thank you. And that’s Agenda for this week. Thanks for taking thetime to watch.