Water – the catatactic commodity

Coal was the key commodity of the 19th century. It powered the Industrial Revolution. In the 20th century it was oil. The wars in the Middle East in the latter part of that period were clearly oil based conflicts. But oil played a significant part in both of the World Wars in the first half of the 20th century. In the First World War, oil first demonstrated its importance. It powered the British Navy. The internal combustion engine in the form of the tank and the airplane created the decisive breakthroughs to end trench warfare. My grandfather was wounded in the ill fated Mesopotamian Expedition. They were fighting to protect British oil supplies in modern day Iraq.

In the Second World War, Japan’s attack on Pearl Harbour was in retaliation to the USA’s oil embargo. Japan’s invasion of South East Asia was an attempt to capture the oil fields there. Likewise, Rommel’s war in North Africa and Hitler’s invasion of Russia has the ultimate goal of securing oil supplies. Hitler diverted his tank divisions from the doorstep of Moscow south to the Caucasus. He viewed the oil fields there as the more important prize. That led to Stalingrad and his eventual defeat. It is easy to see why some historians view all conflicts in the 20th Century as “Oil Wars”.

So what of the 21st Century? Some pundits believe water will replace oil as the key commodity. Water resources are finite. Demand is increasing dramatically. This is not just because of the drinking and washing requirements of a population growing exponentially. Both agriculture and industrial manufacturing consume a lot of water. It takes xx litters of water to produce a cheap cotton T shirt. Limited supply, voracious demand. Will the price of water skyrocket?  It is already an investment theme. There is a good selection of Water funds you can buy, and a matching Dow Jones Index.

And now the chance of the first Water War. Five nations near the Nile’s source have recently signed an agreement to share the river’s water between them. Uganda, Tanzania, Ethiopia, Kenya and Rwanda want to use Nile water for their own irrigation and hydroelectric schemes. Egypt is sabre rattling in response. Anwar Sadat, when making peace with Israel in 1979, said ” The only matter that could take Egypt to war again is water” . Maybe he will be proved right.

Egypt and Sudan use 90% of the water in the River Nile but only make up a quarter of the population along its banks. Around  80% of the water that ends up in the Nile falls first as rain on the Ethiopian highlands. Half of the population of Ethiopia is close to starvation and there is a chronic lack of water for irrigation. So why shouldn’t they use some of the water for themselves? Eqypt’s reply is that it has hardly any rainfall so the Nile is literally its lifeline. Any attempt to divert that water is a serious threat to national security.

The problem is this. Water is not like any other commodity. Oil fields stay put, so there is not much dispute about who owns it. It belongs to whoever owns the land above it. You could sneakily try to drill in from the side.  (Please see the movie “There will be Blood”. Only Daniel Day Lewis could make the line “I’ll drink your milkshake…”  sound so terrifying). In practice, you have to own the land to own the oil. That’s not true with water. Water does not stay put, it flows. And half the time its not on the land anyway. Its in the sea, or in the sky. So its not really a commodity, its an ecosystem. A meta commodity. How can you use 19th century territorial laws to define the ownership of a cloud in the sky? That is catataxis.

Leave a Reply