Misha Zelinsky looks at the energy implications of China’s rise
In an earlier time, to get elected as a federal government you had to keep the people safe, secure and prosperous. Spook the horses on the economy or national security and you could kiss government goodbye. Yet Australia’s blasé attitude to sovereign capability over the last few decades suggests that our politics has shifted away from this traditional contest, with national security losing its status as a dominant ‘Daddy’ issue, instead riding in the backseat to economic management. But history is about to come roaring back – and Labor needs to be ready with a plan.
For evidence of this policy malaise, take a look at our fuel security policy. Australia now has less than 28 days of national fuel reserves. Any military strategist will tell you, take away a nation’s capacity to fuel itself and you will quickly bring it to its knees. However, this misfortune is self-inflicted. Rather than relying on a military foe to do it for us, Australia actively created this weakness by failing to plan for a very foreseeable problem. Given our supreme reliance on road transport, within 7 to 10 days of a major interruption to maritime trade, our supermarket shelves would be empty, airlines grounded, trucks parked and hospital medicine stocks depleted. Extreme rationing would loom. Within weeks Australia would come to a grinding halt – unable to feed, medicate or defend ourselves.
Our fuel security crisis is emblematic of a deeper problem. A quick look at our national inventory shows that our cupboard is startlingly bare. Australia’s sovereign capabilities – that is, our ability to provide the ‘basics’ for ourselves in the event of a crisis – are flashing red. Keeping a healthy manufacturing base through minerals and metals production and machinery, ensuring pharmaceutical development and stockpiling and maintaining critical food and energy supplies are a few other critical steps to maintaining our sovereignty. Many countries hold these items in reserve – so why don’t we?
The return of history
Since the end of the Cold War, Australians have not had to confront our own mortality in the event of a global or regional conflagration. Under the cosy blanket of US global military hegemony and an era of relative global and regional peace and stability, Australia has grown dangerously complacent. We began to believe that we could have enduring peace without security and that great power competition or threats to our way of life could never return. Our politics has followed the signal from voters with the battleground for government defined by the ability to manage the economy through its record 27 years of growth – essentially a demand to keep the good times rolling. This complacency has allowed Australian governments to run down our sovereign capability in previously unthinkable ways – ways that go far and beyond our fuel security – with little to no scrutiny from the public. It’s hard to imagine Australians living under the threat of Soviet annihilation or for that matter Japanese invasion, being fine with the concept of a fuel induced national shutdown in little over a week. And yet today that is exactly where Australia finds itself. That era of stability is now over – and it’s time we woke up to the very material threats that exist to the world order and regional stability.
History didn’t finish in 1989. It just paused – and now its hurtling forward at ever alarming speed. As Australians wake up to this reality, their concerns and demands will shift politics back to a more traditional multi-faceted ground – the ability to keep our country prosperous and secure. The end of the Cold War didn’t just bring in a new era of sunny-sided optimism, it also ushered in an era of blind faith in markets to deliver – including the things that we would really miss in the event of a disruption.
Markets are no doubt incredibly efficient allocators of resources and extraordinarily powerful in the abstract, they can be rocked by the real politick of nationstates and the hard power of military rivalries. And market failure in this sense is a lot more serious.
While we could probably go a little while without a fresh delivery of iPhones, it’s hard to make a ‘she’ll a major interruption to maritime trade, our supermarket shelves would be empty, airlines grounded, trucks parked and hospital medicine stocks depleted. Extreme rationing would loom. Within weeks Australia would come to a grinding halt – unable to feed, medicate or defend ourselves. Our fuel security crisis is emblematic of a deeper problem. A quick look at our national inventory shows that our cupboard is startlingly bare. Australia’s sovereign capabilities – that is, our ability to provide the ‘basics’ for ourselves in the event of a crisis – are flashing red. Keeping a healthy manufacturing base through minerals and metals production and machinery, ensuring pharmaceutical development and stockpiling and maintaining critical food and energy supplies are a few other critical steps to maintaining our sovereignty.
Many countries hold these items in reserve – so why don’t we? The return of history Since the end of the Cold War, Australians have not had to confront our own mortality in the event of a global or regional conflagration. Under the cosy blanket of US global military hegemony and an era of relative global and regional peace and stability, Australia has grown dangerously complacent. We began to believe that we could have enduring peace without security and that great power competition or threats to our way of life could never return. Our politics has followed the signal from voters with the battleground for government defined by the ability to manage the economy through its record 27 years of growth – essentially a demand to keep the good times rolling. This complacency has allowed Australian governments to run down our sovereign capability in previously unthinkable ways – ways that go far and beyond our fuel security – with little to no scrutiny from the public. It’s hard to imagine Australians living under the threat of Soviet annihilation or for that matter Japanese invasion, being fine with the concept of a fuel induced national shutdown in little over a week. And yet today that is exactly where Australia finds itself. That era of stability is now over – and it’s time we woke up to the very material threats that exist to the world order and regional stability. History didn’t finish in 1989. It just paused – and now its hurtling forward at ever alarming speed.
As Australians wake up to this reality, their concerns and demands will shift politics back to a more traditional multi-faceted ground – the ability to keep our country prosperous and secure. The end of the Cold War didn’t just bring in a new era of sunny-sided optimism, it also ushered in an era of blind faith in markets to deliver – including the things that we would really miss in the event of a disruption. Markets are no doubt incredibly efficient allocators of resources and extraordinarily powerful in the abstract, they can be rocked by the real politick of nationstates and the hard power of military rivalries. And market failure in this sense is a lot more serious. While we could probably go a little while without a fresh delivery of iPhones, it’s hard to make a ‘she’ll be right’ case for medicines or vaccines. Free market ideologues and more sanguine economists will say that Australia has nothing to fear from its import reliance. After all, nothing has happened thus far. On that basis we could get rid of fire stations in the wet seasons. Other economists will tell you that markets work well – until they don’t. Which is exactly when you need governments to intervene to correct them. While we should never stop working with allies and global institutions to secure the rules of the road that has made the world work so well , we would be crazy to have a naive faith in their capacity to deliver to us on a just-in-time basis in absolute perpetuity.
A quick scan around the world should have any foreign policy dove shuffling nervously in their shoes. The recent bombing of Saudi Arabian production knocked out five per cent of global oil production overnight and sent prices soaring only scratches the surface of global tensions. The Chinese Communist Party is increasingly assertive in the South China Sea, militarising islands in crucial shipping lanes, providing armed guards to illegal fishing, bullying our friends in ASEAN and making overtures to our Pacific neighbours with promises of cheap and easy money through their so-called Belt and Road Initiative that comes with many strings attached. The Middle East is a tinderbox, with Iran seizing oil tankers with alarming regularity while also threatening to close off the Straight of Hormuz – the channel responsible for 40 per cent of seaborne oil supply. Disruption could come at any minute.
In this context of new and emerging threats, when it comes to sovereign capability – the national capacity to feed, fuel, defend and generally look after ourselves in the event of a crisis – it’s clear that we enormously underdone. Put simply, there are very real questions as to whether Australia could stand on its own two feet if it ever needed to. These questions are no longer intellectual abstractions, rent seeking hypotheses or hawkish sabre-rattling. That we need to ask them at all should worry all of us. In an era of returned great power competition, everything old is new again – and that includes Australia’s national security and sovereign capability policy settings.
Fuelling the national interest
When it comes to security risks, we must be abundantly cautious. Any government worth its salt should really start with energy supplies. After all, it fuels everything else – including our national security. The International Energy Association mandates that nations keep 90 days of fuel available in case of an emergency, while national security strategists will tell you it should be far higher for a country such as Australia. Drilling down, these numbers are even worse. When it comes to diesel – from a low of 12 days – we now have 21 days of supply. Aviation fuel supplies sit at 28 days at best. And this doesn’t factor in a spike in usage from a crisis such as air force demand or panic purchasing. Our reliance on overseas fuel makes us incredibly vulnerable to global disruption of oil markets or hostile actors seeking to cut our continental castle off from critical supplies of liquid fuels. Unlike other nations, Australia doesn’t ‘stockpile’ fuel. Instead, our energy minister can theoretically nationalise fuels sloshing about in the domestic market in an emergency. Australia’s own Department of Energy has questioned this approach, stating the “burdensome” nature of the process would likely “delay an effective Government response in an emergency.”
Even if they did work, Australia’s contingency measures assume we have enough fuel in the system or can make enough in the event of a crisis. However, neither of these are true of Australia. Australia was once completely fuel sufficient. But today, 90 per cent of our transport fuels are imported as either crude or refined product. Put simply, Australia is at a self-induced crisis point. The Morrison Government’s recently announced ‘plan’ to deal with the self-induced fuel scarcity problem would be laughable if it wasn’t so serious. In the event of major disruption, the Prime Minister has agreed to ‘borrow’ some oil from the stockpiles the US keeps handy. That’s assuming they can get it to us. But what if global sea lanes are blocked, as has happened recently? Or a major supplier of oil is attacked by drones, which literally just happened? It makes infinitely more sense for Australia to stock enough fuel to supply itself behind the castle moat, rather than waiting for someone to, hopefully, break the siege and deliver us some.
In this context of new and emerging threats, when it comes to sovereign capability – the national capacity to feed, fuel, defend and generally look after ourselves in the event of a crisis – it’s clear that we enormously underdone. Put simply, there are very real questions as to whether Australia could stand on its own two feet if it ever needed to. These questions are no longer intellectual abstractions, rent seeking hypotheses or hawkish sabre-rattling. That we need to ask them at all should worry all of us.
As a country we must ask ourselves – what product and know-how does Fortress Australia need to learn, produce or stockpile in order to stand on its own two feet should trouble ever come to our region or our shores. And then we need a plan to make sure we have it at our disposal. Furthermore, we should ask what are the things that the world might need from a reliable, democratic supplier and what economic opportunities might those open up? Like economic management, if we don’t get our national security settings right – particularly in the context of rising global and regional tensions – Labor can expect to find itself in opposition for a good time yet. For the party that is traditionally synonymous with nation building and gave Australia its greatest wartime leader in John Curtin – this should be an easy political case to make to the voting public. The intersection of these concepts with Labor’s natural affinity with industry and regional policy may map out a pathway for Labor to return to government with the most powerful mandate of all – the national interest.
So, what are the potential areas of vulnerability and what are the opportunities? First, the bad news. From seven refineries in 2012 we are now down to four, with no policy to retain any refineries at all. Since 1997, we have lost two major steelwork facilities in Newcastle and Wollongong. Since 2014, we closed two major aluminium smelters and an alumina refinery. In 2016, we lost our ability to make complex vehicles when the auto industry shut up shop. We’ve seen shipyards close and continue to lay off workers around the country. The French are helping us learn how to make our own submarines again – with that prospect still at least a decade or more away. We’re down to one major glass production facility. Unlike every other country in the world that quarantines gas for itself – Australia now exports so much of its own gas that we are literally choking our ability to power our factories, gas turbines and households.
More bad news. Our electricity generation fleet is due to shut down in the next few decades with no plan to replace it. Critical medicine shortages – something we don’t even measure in Australia – are on the rise worldwide. For example, Australia recently suffered a major shortage of EpiPens. And climate change is creating an era of drought and bush fires that is stretching our agribusiness model and ability to feed ourselves to breaking point. The scale of Australia’s deskilling makes for a chilling read for those worried about our national capability. The industries listed above are ‘core’ functions of a coherent national security backbone. All countries that are serious about defending themselves jealously guard them. While we should secure these vital functions, we should also consider the vital tech, minerals and capability that we need for the future and identify supply chain opportunities for Australia. This will involve watching what the world is up to and working closely with our friends.
The Panda in the room
While Trump’s ‘America First’ trade strategy is gaining all the headlines, make no mistake, every country in the world is currently contemplating its exposure to global supply chains and supply of critical economic items. A mild decoupling of the West and the Rest is already underway and is likely to quicken rather than slow in the coming years and decades as countries seek to quarantine their supply chains from potential hostile actors. The reason for this is simple – the Chinese Communist Party’s increasingly assertive and winner takes all approach to economic markets and military forward projection. While one cannot necessarily blame the Chinese Government for wanting to dominate economically – it lifts people out of poverty and provides the financial strength to fund military muscle – they themselves wouldn’t expect the world to let the challenge go unmet. When historians look back at the moment that strategic rivalry emerged between the United States and China it may not be Obama’s Pivot or even Trump’s America First election – but rather the ‘Made in China 2025’ industrial plan outlined by the Xi regime.
Not content with its domination of base metals and commodities manufactures, China aims in short time to own the cutting edge and emerging industries of artificial intelligence, advanced manufacturing, quantum computing, digital signalling and others. These high-tech industries will not just define economic dominance, they will also define military supremacy. The China industrial model – where it promotes national champions and seeks to embed them in trading partners – amounts to a form of techno-nationalism that has much of the world spooked. The increasing banning of Huawei from critical infrastructure is a symbol of this deeper suspicion. It is in this context that the US has turned to Australia to secure a reliable supply of rare earth minerals – the critical ingredients for high tech and military manufactures – as a hedge against China’s near total dominance of market share. Given China has previously used this dominance to bully its neighbours Japan and South Korea – two advanced manufacturing powerhouses – and threatened to do likewise to the US in the escalating trade war, this would seem prudent.
Labor could look to deepen this link beyond the mining of rare earth minerals – something Australia has in abundance – by partnering with allied nations in downstream, processing and downstream battery and computer chip technologies. An advanced Australian manufacturing sector would create jobs, add value to our natural endowments and give the world confidence that it would not be held hostage by autocratic regimes. The creation of an Australian hydrogen industry would not just reduce emissions in Australia and export partners – it would give friends like Japan confidence that they wouldn’t be energy choked by their assertive CCP neighbours.
Channelling Curtin
Many of the challenges that face the country – fuel security, youth unemployment, climate change, wages growth, regional growth, human capital investment, research and development – when overlaid with a national security and capability policy, begin to make sense. And this crisis in national capability represents an opportunity for Labor – however it requires a rethink of our views on sovereignty and national security. Sovereignty is a tricky conversation for Labor members, activists and supporters. Many tend to view sovereignty with a suspicion akin to Samuel Johnson’s critique of patriotism; that it is the last refuge of the scoundrel. And while it’s true that Coalition governments can use national security cynically, this doesn’t mean we can afford to ignore it. Ignoring the issue in the past has caused the party to split and kept the ALP out of government for generations. The last time modern Labor dealt with a national security crisis largely came in the form of John Howard’s conflation of terrorism and orderly migration.
While Labor supporters were right to condemn Howard’s cynical use of dog-whistle politics, it didn’t make the opposition benches are more comfortable. Ignoring the issue and failing to credibly plan also made governing – when it came – almost impossible and unauthorised boat arrivals hurt the Rudd-Gillard governments. A failure to meet the current national security moment could see Labor left with another Tampa – an issue that dogged the party for nearly two decades before it was able to reach a settlement internally and with the electorate.
The Morrison Government’s treatment of fuel security shows that for all their tough talk, they haven’t got the policy chops to deal with this complex network of policy challenges. This weakness should give the party confidence to take the government on and demand a proper national sovereign capability plan. We should start by ending the madness when it comes to fuel security and demand urgent investment in domestic refinery capacity and fuel storage in order get our reserves up to acceptable levels. Australian capacity is far better than than shipping the petrol in from Singapore and letting multinational oil and gas comapanies game Australians through price gouging.
There is a hunger for leadership on this issue. When you couple this polling with the popularity of industry policy more generally and the fact that much of the investment will inevitably be regional and northern in its application – in seats Labor must win to form government – and you start to see a powerful 2022 ALP political campaign emerge from a strong national security footing. When you consider that much of the investment could also occur in seats that are most exposed to transitions to a carbon reduced or neutral economy, a national sovereignty and capability industry plan can help overcome the understandable economic anxieties that fuel the political resistance to climate action in many parts of the country. New jobs in new industries backed by strong national interest will give people confidence that they won’t be abandoned in the transition. National security represents a rare policy sweet spot for Labor that provides job security, diverse and broad economic growth and – critically – electoral popularity.
While it’s undoubtedly true that Australia should make friends with our neighbours, pursue multilateral answers to global challenges and work towards a better, more peaceful world underpinned by a liberal rules-based order – our region is becoming more challenging and potentially more hostile. It’s time we woke up to that reality and acted accordingly.
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