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Blue Gold: Russia’s Secret Trump Card after Oil

by Dr. Viktor Danilov-Danilyan, Director, Water Problems Institute of the Russian Academy of Sciences

August 11, 2012 (TSR) – The Human Development Report released by the UN Development Program urges that access to clean water be recognized as a human right.

Forecasts are gloomy: in just two decades, at least 40% of the world’s population will face acute water shortages, while between 2025 and 2035 global consumption of fresh water will almost equal the amount available.

This situation foreshadows a bitter global crisis, because increasing competition for water resources may lead to armed conflicts, acts of water terrorism and full-scale wars. In the last 50 years, the world has seen 37 conflicts over water. However, over 200 intergovernmental agreements on using water resources have been signed over the same period. So the threat of water wars will no longer loom large if the world can develop a system of sensible and reliable cooperation in the sphere.

Not every country has significant natural reserves of water. As many as 90% of people live in countries that have to obtain some of their water resources from their neighbors. Russia has an advantage in this respect: it has the world’s second largest fresh water reserves after Brazil. There are 2.5 million rivers and over 3 million lakes on its territory that together hold 26,000 cu km of water.

Russia needs only 2% of these reserves to meet domestic demand and is quite able to share its water with others. In about 30 or 40 years water may replace oil as the main source of revenue for the Russian budget.

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Of course, that does not mean that water, like oil, will be exported. Water consumption follows the law of diminishing returns. Costs of water transportation for industrial, household or agricultural consumption increase drastically after leaving the basin of a water body.

High transportation costs are the main reason why water cannot be traded like oil. Therefore, water markets will not extend beyond a specific basin, with very rare exceptions. This means that water shortages in countries that have already encountered this problem will be dealt with through large-scale implementation of water-saving technology or through eliminating water-intensive production in favor of imports.

It will be much more rational and beneficial for Russia to shift to water-intensive production technologies that save and protect water resources. These will be developed more keenly as global water shortages grow. Let me emphasize that water-intensive production involves the export of products, not commodities. In order to be an active seller, it is not enough to have water reserves; it is also important to develop a system of water-consuming production. Russia has very good chances of entering this market. Water-intensive industries include power generation, metal production, the paper and pulp sector, polymer chemistry and agriculture. Russia has the potential to succeed in these fields and to become a big exporter of water-intensive products.

Only countries that have plenty of water reserves (besides Russia, these are Canada, Brazil and Australia) can sell these products. The restructuring of the global economy in response to the threat of a global water crisis could be extremely beneficial to countries that are rich in water, because the demand for and prices of water-intensive products will undoubtedly increase. Therefore, exporters of such products will be in a situation similar to that of today’s oil exporters. It is quite possible that water-intensive products will dominate the Russian economy in the post-oil period.

The looming global water crisis, accompanied by increasing regional prices for water and global prices for water-intensive products, will definitely halt the growth of water consumption. The question is what economic, social and political consequences this will bring. The answer depends on whether this change is brought about by elementary forces of economic and social development in the face of which the world would be helpless, or is the result of targeted action aimed at ensuring sustainable development despite a global shortage of fresh water.

Accordingly, the international community will be intently watching the efficiency of water use where water is available. This means that water security at the national level will have two aspects: meeting the domestic water demand and efficiently using abundant resources in line with the needs of the international community. The benefits for everyone are obvious: water and water-intensive products are sent to those who need them, while the exporting country makes effective use of its resources, trading on the international market and making a decent profit. There is only one contradiction here: that is between Russia’s interests and the ability of its leaders to defend them.

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AUTHOR: Dr. Viktor Danilov-Danilyan

Dr. Viktor Danilov-Danilyan is the Director of Water Problems in the Institute of the Russian Academy of Sciences. Born in 1938 in Moscow, he graduated at Faculty of Mechanics and Mathematics of Moscow University in 1960. Apart from Doctor of Science (Economics), Professor, Academician of the Russian Academy of Sciences, he is also the Editor-in-Chief of Encyclopedia Publishing House. Dr. Danilov-Danilyan is experienced and known in the development of approaches to the control and economical assessment of natural resources including water, development of natural rent theory and has written above 450 publications including 28 monographs. He is also a member in the Editorial boards of the journals “Water Resources” and “Economica and Mathematical Methods” and is recipient of the Oder of Honor, RF Government Prize.

Originally published in RIA Novosti.

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