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May 17, 2009

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Noel,

I read a while back that if the price of Uranium were to double, then commercially viable reserves would increase to the point of there being a 1000 year supply. Even at an increased rate of increase in the rate of increase of use. Alas, my google-fu does not seem to be up to finding any such figures. Do you have any?

"That said, the scramble for uranium makes some sense, given how illiquid and segmented the uranium market actually is. ....The scramble for African oil, not so much."

As per my comment when you originally brought this topic up, I'm wondering if the entire thing (oil & uranium alike) isn't a strategic game rather than a profits-based one. Krugman's original objection on CNOOC, for instance, was based largely on the idea that a given party could in extremis shut off the taps during a confrontation. This didn't make a lot of sense to me in terms of resources physically located on the territory of developed democracies or under their control. In terms of the Wild West that is Africa, though, perhaps it has some plausibility.

You wouldn't have to be paranoid to think that a little money or force now might be leveraged into denying an active competitor something they need later. After all, handfuls of men can shut down Nigerian oilfields or threaten Horn shipping lanes on the cheap already. It all presupposes a breakdown in the current global order that I don't see, but they could view it as Mad Max insurance.

"Mad Max insurance." That's fucking brilliant. There is a column in that idea. Remind me to credit you, because I will forget.

To be fair to Krugman, he worried about two things. One, it would be really hard legally for the U.S. government to force the Chinese to, say, stop stockpiling oil absent either outright war or a general ban on "speculation." Two, China could manage Unocal's assets in Kazakhstan outside American supervision.

The problem, as you spotted pretty early, is that in the context of a liquid global market for oil it's kind of hard to exercise the withholding option without hurting yourself as much as the other guy.

OTOH, if the game is no longer about profits, then all bets are off! And once you introduce the idea of Mad Max insurance, then the strategic game and the profit game might be reconcilable, even after accounting for opportunity costs. Need to think about that.

The thing about uranium is that since the market is crazily illiquid. (For reasons that I don't understand but that decades of private efforts have been unable to change.) Which means that a state actor might be able to satisfy their strategic desires without sacrificing much in the way of opportunity costs.

But Mad Max insurance. I like that. "We don't need to build European-style empires, but we'd like to keep the option open. You know, if the Americans get crazy or the zombies begin to rampage or something."

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