Geo-Politics
Will the United States ever purchase Greenland?
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Introduction
Greenland, a vast autonomous territory within the Kingdom of Denmark, holds a unique geopolitical significance that extends beyond its icy landscapes and stunning natural beauty. As the world’s largest island, Greenland is strategically positioned in the Arctic region, making it a focal point of international interest. This introduction will delve into the importance of Greenland for the United States and other nations, explore the historical and current relations between the U.S., Denmark, and Greenland, and examine the key sources of interest and potential conflicts in the Arctic region. Greenland’s significance stems from its vast natural resources, including mineral deposits, fisheries, and potentially lucrative oil and gas reserves. Additionally, the island’s strategic location has garnered global attention due to the shifting dynamics in the Arctic region. The melting ice caps and the opening of new maritime routes have fueled increased interest in the economic and strategic possibilities that Greenland offers. The historical and current relations between the United States, Denmark, and Greenland are intertwined through a complex web of diplomatic, economic, and security ties. While Greenland is an autonomous territory, it remains under Danish sovereignty. The U.S. has historically maintained a military presence in Greenland, particularly during the Cold War, reflecting the strategic importance of the region for both defense and scientific research. In August 2019, President Trump expressed interest in purchasing Greenland—a self-governing part of the Kingdom of Denmark—due to the island’s strategic location in the Arctic and its increasingly accessible natural resources. After Greenlandic and Danish officials asserted that Greenland is “open for business, not for sale,” President Trump canceled a previously scheduled state visit to Denmark in early September and subsequently objected to Danish Prime Minister Mette Frederiksen’s description of his proposal as “absurd.” The incident sparked tensions with Denmark—a close U.S. ally in NATO and fellow member of the Arctic Council—and led some experts to raise concerns about the future trajectory of U.S.-Nordic and U.S.-European relations more broadly. After the Wall Street Journal broke the story that US President Donald Trump had repeatedly expressed interest in purchasing Greenland from Denmark and instructed his White House counsel to look into the matter, the world responded with disbelief. Either the United States had decided at last to drop all pretense of not being an empire, or the emperor had finally lost his marbles. Soren Espersen of the Danish People’s Party was clear: if the story were true, then here stands the “final proof that he has gone mad.” Yet, while the idea that any power – however rich – can simply buy off the world’s largest island outright might sound laughable in the twenty-first century, Billy Perrigo rightly pointed out in TIME Magazine that, even in Greenland’s case alone, it is not without historical precedent. Perrigo shone a spotlight on similar plans made between 1945 and 1947. The origins of such ambitions, however, can be traced back even farther. Setting aside the potential resource benefits for the United States if it were to acquire Greenland, the geopolitical strategic significance would be considerable. It is not widely appreciated that the Arctic today is being actively contested both for its potential maritime resource riches and its potential commercial and military shipping routes. By virtue of its particular location, Greenland may be able to generate an extended continental shelf well beyond its current 200-nautical-mile limit to reach as far as, if not beyond, the geographic North Pole, thereby countering Russian claims to that area. However, self-determination could also include a positive act by the Greenlanders in support of becoming a part of the United States. There are a number of ways they could get there. Full statehood under the US Constitution could be available, as in the case of Hawaii, or as a territory as in the case of American Samoa, Guam, and Puerto Rico, all of which have local legislatures and certain levels of autonomy. Ultimately, whether Greenland becomes a part of the United States, remains with Denmark, or becomes a new independent state is a matter only the Greenlanders can decide.
Legal aspects
Greenland recognizes itself as a self-governing, autonomous country within the Kingdom of Denmark. His Majesty King Frederik the 10th is the ceremonial Head of State, as the system of governance is parliamentary democracy. Since 1979, Greenland has had its own government and parliament. Even though it is geographically part of North America, Greenland is politically part of Europe and an Autonomous Territory within the Kingdom of Denmark. This status was granted through the Greenlandic Constitution Act of 1978, which came into effect in 1979. According to this legislation, Greenland has its own government, known as the Naalakkersuisut, its own parliament, called the Inatsisartut, and a legal system that handles various internal affairs. The autonomy allows Greenland to legislate on matters such as education, health, and social services, providing a significant degree of self-governance.
Extent of Self-Rule, Except for Foreign Affairs and Defence
Greenland exercises extensive self-rule, overseeing key areas like education, health, and natural resources, while the responsibility for foreign affairs and defense remains under Denmark’s purview. The Kingdom of Denmark, through its Ministry of Foreign Affairs and Ministry of Defense, manages global relations and defense matters on Greenland’s behalf, reflecting a clear division of powers. Greenland’s international engagement is facilitated through its membership in various organizations, such as the Nordic Council, fostering collaboration on culture, education, and sustainable development. Although not a full member of the European Union, Greenland benefits from its association as an Overseas Countries and Territories (OCT), enabling participation in EU programs. Furthermore, Greenland actively contributes to Arctic Council initiatives, addressing environmental protection, sustainable development, and scientific cooperation in the Arctic. These affiliations highlight Greenland’s commitment to international cooperation, allowing it to participate meaningfully in discussions and initiatives beyond its immediate geographical boundaries.
Legal framework and precedents for the purchase of Greenland by the US
In exploring the historical interest and precedents surrounding the notion of the United States acquiring Greenland, the statement delves into a historical narrative dating back to 1867, coinciding with the purchase of Alaska from Russia. While discussions regarding the acquisition of Greenland took place during that period, no formal agreement materialized. Notably, the purchase of Alaska serves as a precedent, highlighting the U.S.’s capacity for territorial expansion.
Recent proposals and discussions regarding the acquisition of Greenland by the United States have captured public attention, particularly stemming from a reported dialogue between President Donald Trump and his advisers in 2019. Although no concrete offer was extended, the incident ignited diplomatic discussions and garnered significant media scrutiny.
Integral to the historical backdrop is the 1951 bilateral agreement between the United States and Denmark, known as the Defense of Greenland Agreement. This agreement grants the U.S. military access to strategic bases and facilities in Greenland, with the Thule Air Base being a pivotal asset established during the Cold War era. The Thule Air Base serves as a cornerstone of the U.S. national security initiatives, encompassing missile warning systems, space surveillance capabilities, and other critical defense operations.
Central to any prospective purchase of Greenland by the United States is the securing consent from both Denmark and Greenland. Given Greenland’s autonomous status, its government and populace wield significant influence in determining matters of sovereignty. Moreover, the involvement of other stakeholders may hinge upon the specific terms and conditions outlined in any potential agreement, reflecting the multifaceted nature of such negotiations.
Crucially, any endeavor to purchase Greenland must adhere to established international legal frameworks and norms. Compliance with the UN Charter, the Law of the Sea, and the preservation of indigenous peoples’ rights in Greenland are paramount considerations in ensuring the legitimacy and acceptance of any proposed acquisition. Upholding the rights of Greenland’s indigenous population and respecting international legal principles underscore the necessity for conscientious deliberation and adherence to universally recognized standards in navigating the complexities of territorial transactions.
Economic aspects
Greenland, with a population of approximately 56,000 people, boasts a GDP estimated at $2.77 billion as of January 2022. Its economy thrives on fishing, tourism, and public services. However, recent global attention has been drawn to Greenland’s strategic significance due to its rich deposits of raw materials, including oil, minerals, and rare earth metals. With the effects of climate change facilitating easier access to these resources, Greenland stands at the cusp of becoming a pivotal player in the geopolitical landscape.
Delegations from across the globe converge in Nuuk, vying for partnerships and contracts to tap into Greenland’s potential resource wealth. The allure stems from the expectation that Greenland holds vast reserves, coupled with the possibility of the Northern Sea Route becoming a reliable, partially ice-free passage due to climate change. This strategic value has long been recognized by military analysts and politicians, notably by the Trump administration’s publicized interest in purchasing Greenland in August 2019.
Greenland’s natural endowments, including oil, gas, minerals, and rare earth metals, hold profound implications for various industries and technologies worldwide. Exploiting these resources could significantly bolster Greenland’s economic growth.
However, any acquisition by the U.S. would entail substantial financial considerations. Negotiating with Denmark and Greenland could result in an expenditure ranging from billions to trillions of dollars, marking a considerable financial commitment for the U.S. government. Moreover, investing in infrastructure, public services, and environmental protection poses additional challenges, necessitating substantial resources and logistical prowess.
Nevertheless, the benefits of gaining access and control over Greenland’s resources cannot be understated. The U.S. stands to enhance its economic prospects and energy security, thereby reducing reliance on foreign suppliers, notably China.
Political aspects
The United States considers Greenland strategically important and has maintained a military presence in Greenland since World War II. During the Cold War, Greenland played a key role in U.S. and NATO defense strategy. Thule Air Base in northwest Greenland is the U.S. military’s northernmost installation, providing 24/7 missile warning and space surveillance. Thule also hosts a deepwater seaport and airfield. Warming temperatures in the Arctic and ice loss in Greenland pose environmental concerns, but also raise the possibility of increased access to Greenland’s potential oil, gas, and mineral reserves. Since the 2009 Self-Government Act, Greenland has assumed the right to utilize these resources. In 2013, in an effort to diversify its fishing-dominated economy, Greenland repealed a law banning the mining of radioactive materials and rare earth minerals. Many U.S. policymakers and experts are wary about increased Russian military and commercial activity, as well as Chinese investments, in the Arctic. Some believe that China views Greenland as key to increasing its influence in the Arctic. In 2018, the prospect that China’s state-run banks and a Chinese construction company might fund and help build or upgrade several airports in Greenland alarmed U.S. defense officials; the United States reportedly expressed its security concerns to the Danish government, which ultimately announced it would help finance the airport projects instead.
Political Motivations and Objectives of the Purchase of Greenland by the US
The strategic significance of Greenland’s location in the Arctic region aligns closely with the perspective that the United States perceives it as a valuable asset for both its national security and global leadership. Greenland’s advantageous positioning offers crucial benefits for monitoring and responding to security threats within the Arctic. Notably, the Thule Air Base, situated in Greenland, stands as a pivotal component of U.S. early warning systems and missile defense mechanisms.
The escalating competition and tensions with China and Russia, both in the Arctic and beyond, serves as compelling drivers for the United States to secure a strategic foothold in Greenland. The Arctic region’s growing geopolitical importance, driven by the melting ice opening new maritime routes and enabling resource extraction, pinpoints the urgency. With China and Russia demonstrating keen interest in the Arctic, the U.S. seeks to assert its influence to safeguard strategic advantages. For instance, Chinese involvement in the Greenlandic airport project, alongside financing infrastructure and mineral extraction, constitutes a notable challenge perceived by the U.S. The initiation of China’s Arctic involvement dates back to the 1990s, highlighted by its icebreaker purchase. The progression of Chinese interests throughout the 2010s, marked by significant investments since 2012, signifies a deeper engagement. Notably, Chinese companies also express interest in engineering projects within Greenland’s harbors and other construction initiatives.
The United States may harbor intentions to expand its territorial presence and sovereignty in the Arctic by acquiring Greenland. Such ambitions are in line with broader geopolitical interests aimed at securing control over Arctic waters and resources. The potential purchase of Greenland may enhance the United states’ territorial control in the Arctic, potentially augmenting its influence in the region.
Furthermore, historical ambitions and visions of acquiring Greenland persist within the U.S., stemming from past discussions and interests in the region. Repeated expressions of interest in purchasing Greenland throughout history, including discussions in 2019, highlight the enduring nature of these ambitions, which can shape contemporary geopolitical decisions.
Acquiring Greenland could serve as a means for the United States to enhance its reputation and prestige as a global power. Possessing a territory of strategic importance could bolster the U.S.’s standing on the global stage. Geopolitical maneuvers and strategic acquisitions often contribute to the perceived influence and stature of nations in global affairs.
Political Challenges and Risks of the Purchase of Greenland by the US
Strong Opposition from Denmark, Greenland, and Other Countries
The potential purchase of Greenland by the U.S. may face strong opposition from Denmark, Greenland, and other countries, particularly in the Nordic and European regions. Denmark has consistently asserted its sovereignty over Greenland, and any attempt by the U.S. to acquire the territory without Danish and Greenlandic consent will not possible and it will be violation of international laws and norms. The international community, including European and Nordic nations, might express their deep concerns about such an acquisition.
Backlash from the People of Greenland
The people of Greenland may resist the U.S. purchase due to concerns about autonomy, identity, and culture. Greenland has pursued a path of increased self-governance, and there may be resistance to any move that could compromise this autonomy. Greenland held a referendum in 2008 that resulted in an increased level of autonomy. The sentiment for maintaining their unique cultural identity and having a say in decisions regarding their territory is strong among the Greenlandic population.
Hostile Response from Rivals, Such as China and Russia
The initiation if a purchase could provoke a hostile response from geopolitical rivals, such as China and Russia, who may perceive it as a threat to their interests in the Arctic and beyond. Any move by the U.S. to strengthen its presence in the Arctic may be met with diplomatic or military countermeasures. Russia, in particular, has a significant interest and military presence in the Arctic.
Ethical aspects
Mutual Consent, Fair Compensation, and Mutual Benefit
The potential purchase of Greenland by the United States could be framed within ethical principles such as mutual consent, fair compensation, and mutual benefit. This argument suggests that any negotiations for the purchase would prioritize consent from all parties involved, ensuring a fair and mutually advantageous agreement. Historical precedents, like the Louisiana Purchase in 1803, highlight negotiations and agreements between the U.S. and other nations, reflecting an approach rooted in mutual consent and fair compensation.
Furthermore, the United States may assert that the purchase is in the best interests of the people of Greenland, emphasizing potential economic, social, and security opportunities that integration with the U.S. could provide. The argument could focus on the U.S.’s role as a promoter of stability and prosperity, aiming to extend these benefits to the people of Greenland. Economic indicators, such as Greenland’s GDP, could be analyzed to gauge whether integration with the U.S. would indeed lead to enhanced economic opportunities and social development for Greenland.
Additionally, the U.S. may contend that the purchase serves the best interests of the international community, arguing that its involvement in the Arctic region could foster stability, cooperation, and development. Presenting itself as a responsible global actor, the U.S. may seek to contribute positively to the well-being of the Arctic region. Economic and geopolitical analyses could be conducted to assess the potential impact of U.S. involvement on stability and cooperation in the Arctic, drawing upon historical examples of international cooperation in other regions.
It is essential to acknowledge that ethical claims are inherently subjective, and perspectives on what constitutes fairness, benefit, or the best interests of different parties may vary. Moreover, while historical examples and principles offer context, the ethical evaluation of a specific situation demands an understanding of current geopolitical dynamics, the desires of the involved parties, and potential ramifications for global stability and cooperation.
Ethical Concerns and Dilemmas of the Purchase of Greenland by the US
The potential purchase of Greenland by the United States raises profound ethical questions regarding the legitimacy and morality of transactions involving sovereign territories and populations. It prompts considerations of democracy, human rights, and self-determination. Critics may question the morality of such transactions, which could potentially challenge democratic principles, human rights, and the right of people to determine their own political status. However, the ethical dimensions of territorial transactions are inherently contextual and contingent upon the will of the affected population.
The ethical dilemma revolves around whether the U.S. can ensure responsible policies that prioritize environmental conservation, social well-being, and the preservation of indigenous cultures. Environmental impact assessments, social impact studies, and evaluations of cultural heritage would be indispensable in understanding the potential consequences of such a purchase.
Additionally, the distribution of costs and benefits associated with the purchase engenders ethical questions about justice and equity. Concerns may arise regarding the potential for an unequal distribution of benefits and burdens, disproportionately impacting different segments of the population. Socioeconomic indicators, demographic data, and historical precedents can be analyzed to assess how various groups, especially indigenous communities, have been affected by similar geopolitical decisions in the past.
Approaching these ethical concerns requires recognition of diverse perspectives and values, acknowledging that ethical considerations are subjective and context-dependent. While the use of data, facts, and figures can inform discussions, they may not offer definitive answers to complex ethical questions.
Conclusion
In a nutshell, the current Greenlandic political strategy is not based on integration into any existing national state. On the contrary, it is the full formal sovereignty as a national state with the following three priorities: legal self-government, economic self-sufficiency and transition to a multi-faceted economy. The answer to Trump’s interest in buying Greenland from Naalakkersuisut on 16 August 2019 was clear: “We have a good cooperation with the USA, and we see it as an expression of greater interests in investing in our country and the possibilities we offer. Of course, Greenland is not for sale.”
Analysis
Malaysia to Investigate Leaked Classified Chinese Note on South China Sea Dispute
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Malaysia’s Ministry of Foreign Affairs has launched an internal probe into the leak of a classified diplomatic note sent by China concerning oil exploration activities in the South China Sea. The move follows an article published by the Philippine Daily Inquirer on August 29, which detailed the contents of the confidential communication. The Malaysian government expressed grave concern over the breach, as the document constitutes an official communication channel between Beijing and Kuala Lumpur.
Background
In February 2024, China sent a classified diplomatic note to Malaysia, expressing concerns over Malaysia’s oil and gas exploration activities in the South China Sea. This note was leaked by the Philippine Daily Inquirer on August 29, 2024, drawing attention to ongoing regional tensions. The focus of China’s concern was Malaysia’s exploration near the Luconia Shoals, an area situated roughly 100 kilometers off the Malaysian state of Sarawak. While Malaysia asserts its rights to this region, China claims the area under its controversial nine-dash line, which covers nearly the entire South China Sea.
The diplomatic note highlights China’s longstanding claim over the South China Sea and highlights Beijing’s opposition to Malaysia’s exploration activities. According to the document, these activities infringe upon China’s territorial claims, and the note urges Malaysia to halt its operations immediately. This is not the first time such concerns have been raised, but the leak has brought the issue into sharper focus, putting additional strain on the diplomatic relations between the two nations.
Malaysia’s response to the leak has been swift. The country’s Foreign Ministry has initiated a police investigation into how the document was made public and launched an internal probe. Malaysia’s stance remains firm, with officials emphasizing that the country will continue to protect its sovereignty and pursue its interests in its maritime areas, in accordance with international law, specifically the United Nations Convention on the Law of the Sea (UNCLOS).
Malaysian Prime Minister Anwar Ibrahim further reinforced this position, stating that Malaysia will persist with its oil and gas exploration in the South China Sea despite the concerns raised by China. This development reflects the broader regional dynamics, as Malaysia, along with the Philippines, Vietnam, and Taiwan, all have overlapping claims in the South China Sea, making the area a significant flashpoint for international relations.
Recent Developments
The leaked diplomatic note highlights the sensitive and contentious nature of the territorial disputes in the South China Sea. It also sheds light on the careful balancing act Malaysia is attempting, as it seeks to assert its rights in the region while managing its diplomatic ties with China.
In its statement released on Wednesday, the Ministry of Foreign Affairs confirmed it is conducting an internal investigation and will be filing a police report to further scrutinize the incident. While the ministry refrained from naming the Philippine media outlet or verifying the authenticity of the note, it emphasized the need for swift action to prevent further leaks of classified materials.
Malaysia Urged to Halt All activities in the South China Sea by China
The note in question reportedly urged Malaysia to halt all oil exploration and drilling operations in the Luconia Shoals, a resource-rich area located about 100 kilometers off the coast of Sarawak. According to the Inquirer, China claimed that Malaysia’s activities in the region violated its sovereignty under the controversial nine-dash line. China’s nearest landmass, Hainan Island, is situated approximately 1,300 kilometers from the disputed shoals.
The South China Sea dispute involves competing claims from multiple nations, including Malaysia, the Philippines, Vietnam, and Taiwan. China claims nearly the entire sea based on historical maps, despite a 2016 international arbitration ruling that dismissed the nine-dash line as legally baseless. Malaysia, while sharing strong economic ties with China, has now become entangled in the broader geopolitical tensions over control of these vital waters.
Malaysia’s Ministry of Foreign Affairs reaffirmed its stance on the South China Sea, pledging to defend its sovereignty and interests in accordance with international law, including the United Nations Convention on the Law of the Sea (UNCLOS). The ministry noted that while Malaysia seeks peaceful resolution through dialogue, the country will remain firm in protecting its maritime rights.
Beijing has not commented on the leaked note. However, diplomatic tensions have flared in recent months, with China’s aggressive presence in the South China Sea leading to repeated confrontations, especially with the Philippines. Just this year, multiple stand-offs occurred between Chinese and Philippine coastguards near Second Thomas Shoal.
Prime Minister Anwar Ibrahim has maintained a more diplomatic approach toward Beijing, stressing the importance of balancing national interests with regional stability. However, the leak has raised concerns about Malaysia’s ability to maintain this balancing act amid increasing pressure from China. Anwar has acknowledged China’s concerns over Malaysia’s energy activities but remains open to negotiations on resolving maritime disputes.
This incident marks the second time in recent months that China’s activities in the South China Sea have drawn public attention in Malaysia. Earlier this year, a standoff between Malaysian state oil company Petronas and Chinese vessels occurred near the same contested waters. Chinese survey ships have increasingly patrolled the area, challenging Malaysia’s economic activities within its Exclusive Economic Zone (EEZ).
Despite these challenges, Malaysia’s foreign ministry highlighted that Kuala Lumpur and Beijing have committed to handling the South China Sea dispute diplomatically. Both nations co-chair discussions within the ASEAN framework aimed at reaching a Code of Conduct (COC) for the region, with negotiations expected to finalize in the coming years.
China’s claims over the South China Sea are based on the nine-dash line, a boundary dating back to 1947. However, the Permanent Court of Arbitration in The Hague ruled in 2016 that this claim had no merit under international law, siding with the Philippines. China has disregarded the ruling, continuing to assert its claims through military and diplomatic means.
Malaysia’s role in the dispute is further complicated by its reliance on China as its largest trading partner. Since 2009, bilateral relations between the two nations have strengthened, even as Malaysia faced pressure from the international community to stand firm against Chinese encroachment on its EEZ.
The Luconia Shoals, where the recent conflict has surfaced, are located within Malaysia’s EEZ, recognized by UNCLOS. However, China’s claim extends beyond its geographic proximity, relying on historical maps to justify its territorial ambitions in the South China Sea.
While the dispute escalates, Malaysia’s foreign ministry reiterated that its focus remains on diplomatic engagement. The government has called on all nations involved to respect the principles of peaceful negotiation and avoid any actions that could lead to violence or further escalation in the region.
End Note
The leak of China’s diplomatic note adds complexity to Malaysia’s foreign policy strategy, as it seeks to maintain both economic ties with China and its sovereign rights in the contested waters. Analysts believe that Malaysia’s next steps will be closely watched, both by regional partners and global powers like the United States.
Malaysia remains engaged in ASEAN-led efforts to establish a Code of Conduct for the South China Sea, aimed at reducing tensions and fostering long-term peace.
The investigation into the leak is ongoing, with the Malaysian government prioritizing both national security and diplomatic engagement with China. As tensions persist, Malaysia faces the challenge of navigating its position in a rapidly evolving geopolitical landscape.
Analysis
Can Saudis Survive Without Oil?
![Can Saudis survive without Oil?](https://thepacificreports.com/wp-content/uploads/2024/09/Can-Saudis-survive-without-Oil.jpeg)
“Russia, Iran and Saudi Arabia depend on exporting Oil & Gas. Their economies will collapse if Oil & Gas suddenly give way to Solar & Wind.” (Yuval Noah Harari)
Oil has long been the backbone of Saudi Arabia’s economy and the driving force behind its development. As the world’s largest oil exporter, it’s challenging to envision a Saudi Arabia without oil. However, the country is now on a bold mission to reduce its dependence on oil revenue as the bedrock of its national economy. This push for economic diversification comes in the wake of a decade marked by oil market volatility, which has intensified the economic and political challenges faced by the ruling Al Saud family. Saudi Arabia possesses approximately 17% of the world’s proven petroleum reserves, making it one of the leading net exporters of petroleum and home to the world’s second-largest proven oil reserves. Saudi Aramco, one of the world’s largest integrated energy and chemical companies, operates across three segments: upstream, midstream, and downstream. In 2022, Aramco’s average hydrocarbon production was 13.6 million barrels per day, with crude oil accounting for 11.5 million barrels per day. The company proudly claims to produce the lowest-carbon barrel of oil in the industry and has committed to achieving net-zero emissions by 2050, ahead of the government’s 2060 target. Saudi Arabia continues to invest in cleaner conventional engines, carbon capture, utilization and storage (CCUS), hydrogen, and renewable energy sources. Despite these efforts, Saudi Arabia remains heavily reliant on oil, which contributes 42% to the country’s GDP, 90% of export earnings, and 87% of budget revenue.
Historical Context
(March 3, 1938 CE: Oil discovered in Saudi Arabia)
On March 3, 1938, an American-owned oil well in Dammam, Saudi Arabia, tapped into what would become the world’s largest petroleum reserve. This discovery profoundly transformed Saudi Arabia, the Middle East, and the global landscape—politically, economically, and geographically. Before the discovery, the majority of Saudi Arabians were nomadic, and the nation’s economy largely depended on the tourism industry, driven by religious pilgrimages to Mecca. The company responsible for the discovery, which later became Chevron, set the stage for a seismic shift in the country’s future.
In the wake of the discovery, Saudi engineers developed an extensive infrastructure of ports, refineries, pipelines, and oil wells. Today, oil accounts for 92% of Saudi Arabia’s budget, making the nation one of the world’s leading producers and exporters of petroleum. This wealth from oil has fostered high-level diplomatic relationships with the West, as well as with China, Japan, and Southeast Asia. Some argue that Saudi Arabia’s oil wealth allows it to wield significant influence over international foreign policy decisions, particularly those involving the Middle East.
The kingdom’s demographics have also been reshaped by the oil industry, attracting millions of foreign workers from the Middle East, South Asia, South East Asia and other regions of the world. The first oil discovery site near Dharan is now connected to a vast pipeline network that transports petroleum across the region.
Petrodollar System
Petrodollars refer to the revenues generated from oil exports, denominated in US dollars, and are not a separate currency but rather US dollars accepted by oil-exporting countries in exchange for their oil. In 2020, the global average for daily crude oil exports was around 88.4 million barrels. With an average price of $100 per barrel, this would translate into an annual global supply of petrodollars exceeding $3.2 trillion.
For many members of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil and gas exporters like Russia, Qatar, and Norway, petrodollars are a primary source of income and wealth. The term “petrodollar” reflects the common practice of these nations accepting US dollars for crude oil transactions rather than a global trading system or a distinct currency. The US dollar is favored by oil exporters because of its global value in international investments, making it a practical store of value for oil revenues that need to generate returns.
A significant example of petrodollar recycling is the 1974 agreement between the United States and Saudi Arabia, where Saudi petrodollars were invested in U.S. Treasuries. The profits from these investments were later used to finance American arms sales to Saudi Arabia, as well as various development and assistance programs in the country. Today, many oil-exporting nations channel their petrodollars through sovereign wealth funds, investing in stocks, bonds, and other financial products. For example, one such fund holds nearly 1.5% of all publicly traded shares worldwide, with 72% of its investments in equities.
The petrodollar system has been crucial in facilitating smoother international trade by standardizing oil pricing, simplifying transactions, and reducing exchange rate risks for oil-importing nations. This system underpinned the strategic alliance between the United States, Saudi Arabia, and other oil-producing countries—a partnership that has significantly influenced global politics for decades. For oil-exporting nations, petrodollars have provided essential income, enabling reinvestment in infrastructure, drilling, and exploration projects, which in turn boosts oil production and drives technological advancements in the energy sector.
The petrodollar system has reinforced the US dollar’s status as the world’s primary reserve currency, driving global demand for it. Oil-exporting countries typically hold large reserves of US dollars, which they often invest in US government securities, thereby strengthening the US economy. This high demand for US dollars, fueled by oil trade, helps maintain a favorable US trade balance and ensures ample liquidity, making the dollar the most traded currency in the forex market.
However, the future of the petrodollar system is increasingly uncertain due to shifting geopolitical dynamics. On June 9, 2024, Saudi Arabia ended its 50-year petrodollar agreement with the United States, an event widely regarded as the “end of the petrodollar.” This agreement had been the cornerstone of the petrodollar system, and its termination marks a significant shift in the global economic landscape. With the end of this agreement, oil transactions may now be conducted in various currencies, including the yuan, euro, yen, and possibly even virtual currencies like Bitcoin.
These developments reflect a growing desire among nations to diversify economic risks and reduce their reliance on the US dollar. By diminishing the dollar’s dominance, these changes could lead to a more multipolar monetary system, granting countries greater financial independence and potentially creating a more balanced global economic environment. The rise of new economic alliances and the global shift towards sustainable energy alternatives further challenge the traditional oil-US dollar system. The transition to renewable energy could reduce global reliance on oil, thereby diminishing the significance of the US dollar and prompting a reevaluation of the current system.
As global energy and financial systems evolve, the role of the petrodollar is increasingly being questioned. The recent end of the US-Saudi agreement is a clear example of the shifting geopolitical and economic landscape. These changes may result in market volatility and the revaluation of various currencies, presenting both challenges and opportunities for the global economy.
Diversification Efforts
Saudi Vision 2030
“Given the nation’s climatic advantages, the Vision 2030 statement stresses the growth of renewable energy sources, such as solar and wind. Opportunities for Western businesses specializing in solar and wind technology, energy storage solutions, and green construction technologies arise from the target of producing 9.5 gigawatts of renewable energy by 2030. The country is a rich ground for renewable energy projects because of its large, sunny deserts and substantial investment in green energy.” (Rana Maristani)
Saudi Arabia’s Vision 2030 is a comprehensive plan launched on April 25, 2016, aimed at reducing the nation’s dependency on oil and diversifying its economy. Centered around three main themes, the framework outlines specific objectives to be achieved by 2030, including the development of ports, cultural assets, and tourism destinations to leverage Saudi Arabia’s strategic position at the crossroads of the Arab and Islamic worlds. A key element of the plan involves partially privatizing the national oil company, Aramco, and enhancing the resources and influence of the Saudi Public Investment Fund.
For decades, Saudi Arabia’s economic growth has been driven by oil, but this reliance has exposed the nation to the volatility of global crude prices. In the 1990s, while oil prices remained stagnant, government policies encouraging larger families led to a population boom. This growth, combined with a young, highly educated workforce, resulted in rising underemployment and unemployment rates, particularly among the youth.
Vision 2030 seeks to address these challenges by transforming Saudi Arabia’s economy over 15 years. The plan aims to improve the quality of life for citizens through world-class healthcare and education, equipping young people with the skills needed for future jobs. It also focuses on creating a diversified economy, emphasizing trade, tourism, high-tech industries, and a business-friendly environment to attract foreign direct investment and entrepreneurs. Key areas of diversification include cryptocurrency, artificial intelligence, and environmental sustainability.
In a significant milestone, Saudi Arabia’s non-oil sector contributed 50% of the GDP for the first time last year, signaling the success of the ongoing economic transformation. With Vision 2030, the Kingdom plans to inject $3 trillion in foreign investment into its economy, driving further growth and offering new opportunities for multinational companies. As the nation continues its economic revolution, it is well-positioned for a promising future.
“Saudi Arabia is becoming more welcoming to foreign investment as it works to advance living standards, build non-oil sectors, and upgrade infrastructure. The Kingdom has taken the initiative in recent years to improve the investment climate by enacting policies that improve business regulations, providing incentives, and establishing special economic zones that offer advantages like tax breaks and business support services.” (Rana Maristani)
Difficulties and Vulnerabilities
The Kingdom of Saudi Arabia is confronted with various obstacles and weaknesses, chiefly arising from the vagaries of international markets and oil prices. The country urgently has to diversify its economy and lessen its reliance on oil revenue, as this instability in the economy highlights. The country also needs to deal with environmental issues and the global shift to renewable energy sources, which puts further strain on its established economic structure. Given that oil exports account for a sizeable amount of Saudi Arabia’s national income, the country’s economy is greatly impacted by the volatility of oil prices. It is challenging for the nation to keep a solid economic outlook due to the unpredictability of the world oil market. As a result, the kingdom has been actively pursuing measures for economic diversification through its Vision 2030 project, with the goal of fostering the growth of non-oil industries including technology, entertainment, and tourism. The world’s need for oil is predicted to decrease as it moves toward renewable and sustainable energy sources. The adoption of greener technologies and investments in renewable energy projects are imperative in light of this worldwide trend. Saudi Arabia, seeing the need to change with the energy environment, has begun to investigate and invest in solar and wind energy. The main issues facing Saudi Arabia are its dependency on oil for its economy, the instability of the market, and the necessity of embracing environmental sustainability. For the country to have long-term economic stability and growth, these problems must be resolved.
Financial Resilience
After a year of minimal growth in 2023, the Saudi economy is expected to start recovering in 2024, though its success will largely hinge on the government’s oil production policies. The economic downturn in 2023 was exacerbated by the monarchy’s unilateral decision to cut oil output by one million barrels per day from July 2023 through the end of the year to support oil prices. This move led to a self-inflicted economic slump. However, with an anticipated increase in oil production and exports, along with continued expansion in the non-oil sector, real GDP growth is projected to rise by approximately 2% in the latter half of 2024, aligning with historical averages since 2014.
A significant budget deficit is likely to persist, potentially dampening energy and construction projects, particularly with the resurgence of regional conflicts. Despite these challenges, Saudi Arabia is expected to continue investing heavily in large-scale projects.
Saudi Arabia’s reliance on agri-food imports, particularly grain, remains substantial, but the kingdom has managed to find alternatives due to its purchasing power. Inflation is projected to remain around 2%, supported by substantial export earnings, significant reserves that maintain the currency peg with the US dollar, and a rigorous monetary tightening cycle that began in March 2022 alongside the US Federal Reserve.
Oil prices will continue to be a key driver of the economy, providing essential funding for Vision 2030’s long-term objectives. Decisions made by OPEC and its partners, including Russia, Kazakhstan, Azerbaijan, Mexico, and Oman (OPEC+), have struggled to maintain crude oil prices above USD 80 per barrel, a level deemed necessary for most OPEC+ countries to balance their trade and fiscal needs. Attempts to increase production limits have been hindered by renewed geopolitical tensions in the Middle East, benefiting countries not constrained by output limits.
Non-Oil Prospects
In 2022, Saudi Arabia’s economy grew faster than any other G20 nation, with overall growth reaching 8.7% and non-oil GDP expanding by 4.8%. The non-oil sector saw its most robust growth since Q3 2021, increasing by 6.2% in Q4 2022. For 2023, the non-oil sector is expected to grow by 4.7%, driven primarily by strong private consumption and significant private sector investments, particularly in construction, retail, wholesale, and transportation. This shift highlights the growing role of the private sector in Saudi Arabia’s evolving economy.
Vision 2030 aims to increase the non-oil GDP share to 50% by 2030 and diversify non-oil exports. Key sectors for focus include finance, insurance, transportation, communication, non-oil manufacturing, and agriculture. In 2023, non-oil revenues surged by 9%, while oil revenues fell by 3% due to declining crude prices. To reduce reliance on oil, the Saudi government has implemented significant budgetary reforms including revenue enhancement, spending rationalization, Treasury Single Account implementation, energy price reforms, fiscal risk assessments, improved budget transparency, and strengthened debt management.
The non-oil sector is seen as a crucial component for managing the increasing number of Saudi nationals entering the labor market each year. It offers greater stability, sustainability, and job creation compared to the volatile oil sector.
Geographical Consequences
The stability of the region and worldwide alliances are greatly impacted by Saudi Arabia’s strategic position in the world oil markets. Being one of the world’s top oil producers, the Kingdom has significant influence over the availability and cost of energy worldwide. Saudi Arabia is able to shape alliances and regional dynamics thanks to its advantageous geopolitical position. The potential of the Kingdom to influence or destabilize the oil markets can have significant ramifications for countries that import and export petroleum products. Global markets closely follow Saudi Arabia’s decisions about the amount of oil produced, as these decisions have the potential to affect global economic conditions. Its position in the Organization of the Petroleum Exporting Countries (OPEC), where it frequently takes the lead in coordinating member states’ production policies, is another example of this power. Saudi Arabia’s energy policy and geopolitical ambitions are closely related on a regional level. Part of the reason for its partnerships with major world powers, especially the US, is shared energy interests. Additionally, the Kingdom can support or oppose different regional actors due to its money and influence, which has an impact on regional stability. Saudi Arabia’s oil interests and the need to preserve its dominant position in the region play a major role in its engagement in crises and diplomatic attempts throughout the Middle East, particularly its attitude on Iran.
Inference
When one considers Saudi Arabia’s transition from an oil-dependent economy to one that is more diverse, one can see that the Kingdom is at a turning point. Although there is uncertainty about the future during this shift, it emphasizes how important it is to be resilient and adaptable. By adopting strategic planning, encouraging innovation, and making a commitment to sustainable development, Saudi Arabia is managing this transition. Even though there are still obstacles to overcome, the Kingdom’s initiatives to lessen its reliance on oil earnings and investigate new business opportunities represent a substantial step in the direction of a more diverse and sustainable future. In essence, Saudi Arabia’s long-term economic growth and stability will depend greatly on its capacity to adjust to these changes. Although the road ahead is difficult, the Kingdom’s proactive strategy presents a viable way forward.
Asia
How Benito Ebuen Air Base in Cebu provides strategic depth to the Philippines?
![How Benito Ebuen Air Base in Cebu provides strategic depth to the Philippines?](https://thepacificreports.com/wp-content/uploads/2024/09/How-Benito-Ebuen-Air-Base-in-Cebu-provides-strategic-depth-to-the-Philippines.jpeg)
From the Soviet Union’s vast geography repelling German forces during World War II to Israel’s control of the Golan Heights providing a defensive advantage, nations have relied on strategic depth to protect their territories throughout history. In the Philippines, Benito Ebuen Air Base on Mactan Island serves a similar purpose, offering the nation a crucial military hub at the heart of the Visayas region. Positioned centrally, this base is more than just a runway; it plays a vital role in the rapid deployment of air assets, enabling the country to respond swiftly to threats and emergencies. As regional challenges evolve, the strategic significance of Benito Ebuen Air Base becomes increasingly apparent, highlighting its essential role in national defense and regional stability. What makes Benito Ebuen Air Base so essential, and how does its location help keep the country safe? Let us explore this vital base and find out.
Overview of Benito Ebuen Air Base
Benito Ebuen Air Base is a pivotal military facility located on Mactan Island in Cebu, established in 1958. It is named in honor of General Benito Ebuen, a distinguished figure in the Philippine Air Force. Over the decades, the base has grown into a key component of the Philippine Air Force’s operations, playing a vital role in air defense and operational readiness. Its evolution reflects the Philippines’ commitment to a modern and capable air force.
The strategic significance of Benito Ebuen Air Base is amplified by its central location in the Visayas region. Situated on Mactan Island, the base is ideally positioned to provide comprehensive coverage and support throughout the central Philippines. This central placement allows for efficient coordination and rapid deployment of air assets across the archipelago. Its location facilitates quicker response times to both regional and national emergencies, enhancing overall defense and operational flexibility.
Historical Background
With its beginnings during the American rule of the Philippines, Benito Ebuen Air Base has a rich past. Founded on Mactan Island, it served as a key location for regional military operations. The base supplied vital air support and logistical support in the defense of the area against Japanese forces during World War II.
A new era began when the base was turned up to Philippines authority after the war. The base has undergone significant renovation and modifications over this time, making it an essential part of the Philippine Air Force. Thanks to these improvements, Benito Ebuen Air Base will continue to be a vital resource for the nation’s operational and air defense requirements.
Strategic Importance
Because it is home to important Philippine Air Force units like the 220th Airlift Wing and the 205th Tactical Operations Wing, Benito Ebuen Air Base is very valuable militarily. The base’s involvement in regional security and defense is strengthened by these units, which are essential for carrying out a variety of tasks, from tactical missions to strategic airlift.
The Enhanced Defense Cooperation Agreement (EDCA) between the United States and the Philippines significantly increases the base’s strategic significance. The objective of the April 28, 2014, agreement, which was signed by President Benigno Aquino III, is to enhance security cooperation between the United States and the Philippines by increasing the rotational deployment of US soldiers at specific sites, such as Benito Ebuen Air Base.
Recent events have highlighted how crucial this agreement is. The EDCA’s implementation has accelerated despite early setbacks and difficulties, such as opposition and judicial review, particularly in reaction to China’s forceful moves in the South China Sea. The US and the Philippines expedited their plans in February 2023 to fully implement EDCA, adding four new facilities to the list of places already in place. In addition, the agreement has resulted in the approval of other new projects and increased funding.
Significant turning points in US-Philippine security relations occurred in April 2024. In order to support freedom of navigation, a maritime cooperative activity including the US, Australia, Japan, the Philippines, and the Philippines was carried out in the South China Sea on April 7. The first trilateral summit between the US, Japan, and the Philippines was held on April 11 with the goal of advancing an open and free Indo-Pacific. In addition, the two countries’ continued strategic cooperation in the face of escalating regional tensions served as a highlight of the EDCA’s tenth anniversary.
In essence, the strategic significance of Benito Ebuen Air Base is enhanced by the continuous EDCA relationship, making it not only an essential operational hub but also a crucial component of the larger framework of US-Philippine defense cooperation.
Strategic Depth and Regional Stability
The Philippines benefits greatly from Benito Ebuen Air Base’s strategic position on Mactan Island in Cebu. Its central location within the Visayas allows it to respond quickly to different parts of the archipelago. During emergencies, this centrality is essential because it enables the effective deployment of manpower and resources to impacted areas. Beyond military, the base plays a crucial role in aiding humanitarian and disaster relief efforts. For example, its close proximity makes it easier to mobilize quickly in the event of a disaster, as demonstrated by the recent typhoon emergencies in the area.
The base’s continued expansion and enhancement of its infrastructure serves to emphasize its strategic relevance even more. Under the Enhanced Defense Cooperation Agreement (EDCA), the Philippine government and the US government will continue to improve the base’s amenities in 2024. To handle additional aircraft and equipment, these modifications include enlarging runway capabilities and enhancing logistical support systems. The goal is to guarantee that the facility can efficiently support tasks pertaining to both international cooperation and national defense.
Future plans include for a possible augmentation of the military’s presence at Benito Ebuen Air Base. The infrastructure improvements and strategic adjustments are intended to support a wider variety of military actions. This growth is in line with the Philippines’ overarching plan to improve its defense capabilities and better address threats to regional security.
Current Operations and Facilities
The runways that Benito Ebuen Air Base shares with Mactan-Cebu International Airport (MCIA) are vital to the aviation industry in the area. MCIA managed about 17,000 international aircraft movements in 2023, highlighting the agency’s significance for both military and commercial aviation. The base’s operating flexibility and efficiency are improved by this integration.
The facilities on the site are capable of supporting various military activities. Its infrastructure has been updated recently to support combined missions and modern aircraft. For instance, U.S. Air Force F-22 Raptors performed operations at Benito Ebuen on August 8, 2024, showcasing the base’s capacity to handle high-performance aircraft.
Major enhancements are in progress under the Enhanced Defense Cooperation Agreement (EDCA). Expanding and updating facilities to accommodate bigger and more varied aircraft is the main emphasis of recent improvements, which are in line with strategic objectives to improve operational preparedness and regional security.
In order to guarantee that Benito Ebuen Air Base continues to be a vital asset for the Philippine Air Force and allied operations, future plans call for ongoing upgrading initiatives. The base’s strategic significance in the area is bolstered by its developing infrastructure, which supports its participation in joint exercises and tactical actions.
Geopolitical Context
In order to address security concerns in the Visayas region, Benito Ebuen Air Base is essential. Threats from terrorism and insurgency have been present in the region, and local military units are actively involved in counterterrorism and counterinsurgency activities. Along with its brigades, the Joint Task Force Spear of the Philippine Army’s 3rd Infantry Division fights armed militants and strengthens territorial security. For the region to remain stable and secure, these initiatives are essential. Additional resources and training possibilities are brought about by cooperation with the United States, especially through the Enhanced Defense Cooperation Agreement (EDCA).
Recent EDCA-funded U.S. military exercises and upgrades, for example, have strengthened the defense posture in the region by enhancing the capabilities of sites like Benito Ebuen Air Base.
By forming both domestic and international alliances, these cooperative initiatives highlight the significance of Benito Ebuen Air Base in the larger geopolitical context and promote peace and security in the region.
End point
The Benito Ebuen Air Base, established in 1958 on Mactan Island, is a cornerstone of the Philippines’ military strategy due to its strategic location and critical role in national defense. Over the years, it has evolved into a vital air operations hub, key to both regional security and the nation’s quick reaction and humanitarian aid efforts. As the base undergoes upgrades and expands its capabilities, it will play an even greater role in addressing emerging threats and collaborating with international allies. Its central position in the Visayas not only enhances its strategic importance but also reinforces its contribution to regional stability.
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