The Next Stage of the Global Resource Arms Race

The Next Stage of the Global Resource Arms Race

In 1904, Sir Halford John Mackinder, a British geographer and academic, presented a paper to the Royal Geographical Society.

The Geographical Pivot of History is a remarkable paper for two reasons.

For starters, it gave birth to the modern science of geopolitics.

More importantly, it may have played a central role in dooming the world to two global wars.

How could one paper have so much influence on modern history?

Mackinder’s outlook was a theoretical expression of what would become British foreign policy. He believed that geography played a key role in attaining global power. And he used this belief to make sense of history — and world politics.

Mackinder’s research led him to divide the world into three parts. You can see this illustrated in the map that Mackinder created at the time:

Source: The Geographical Pivot of History

For Mackinder, global power centred on what he called the ‘Heartland’. The ‘pivot area’ marked on the map shows this. It’s basically the Eurasian landmass, with Russia dominating the whole area.

The second part of Mackinder’s division is an ‘inner crescent’ of flashpoints bordering the Heartland — Europe, the Middle East, the subcontinent and East Asia. This is where geopolitical flashpoints were always likely as competing nations wrestled for control of the key areas.

Finally, Mackinder had a third and outer crescent consisting of peripheral continents in geopolitical analysis, including Africa, the Americas and Australasia.

Mackinder’s basic premise was that whoever controlled Eastern Europe could control the Heartland too.

Any dominating position in the natural seat of power would provide control of huge reserves of raw materials and men — enough to dominate the entire world.

Such an idea would always be a worry.

When the victors write history

At the time, Britain was the world’s dominant superpower, courtesy of their naval power. They also used this to contain and disrupt regional players across Eurasia.

The primary British foreign policy objective was to prevent any foreign countries uniting and rivalling it for power or arms.

As the British saw it, the biggest threat was the emergence of a major power from the inner crescent or pivot area that could come to dominate the Heartland.

That put one country firmly in Britain’s crosshairs: Germany.

By 1900, Germany was heavily industrialised, rich and building up its military capabilities, including a navy to rival Great Britain.

The British aim had to be to prevent German technology uniting with vast Russian natural resources. In doing so, they’d prevent the unification of a force that could come to dominate the Heartland and, indeed, the world.

This helps explain why Britain encircled Germany before the First World War, entering into alliance with France on Germany’s western border and Russia to the east long before the outbreak of war. Both France and Russia had been enemies and rivals of Great Britain in previous generations.

You’ll be familiar with what happened next. Two world wars decimated Germany, and permanently damaged its relationship with Russia.

But it wouldn’t end there.

The aftermath of the Second World War brought a new dynamic to geopolitics.

One was the rise of the Soviet Union, which, like Germany, would attempt to control the Heartland in the 40 years that followed the Second World War.

The other was the United States became a global superpower, built on control of the seas, much like Britain before it.

This new global dynamic had two different starring roles. But the sequel ended much the same as the original.

In vying for supremacy over the Heartland, the US encircled the Soviets. Following decades of arms races and proxy wars, the Soviet Union eventually became overstretched, resulting in its breakup in 1990.

It’s extraordinary to think that Mackinder’s idea of geography and power came to define the 20th century in the way that it did.

But it doesn’t just tell us about the past. It also gives us a unique perspective from which to project the future. While history may not repeat the same way twice, it certainly does rhyme.

Not since the days of the Cold War has there been any genuine attempt to unite and control the Heartland.

But that’s now changing.

Mackinder’s ghost lives on in Beijing

Developments taking place across Eurasia today suggest we’re marching to the drums of history yet again.

China’s ‘One Belt, One Road’ initiative appears driven to unite the Heartland, creating a common market comprising some three billion people.

This market is not only home to half the world’s population, it houses much of the world’s energy and food reserves as well.

This diversifies China’s trade and supply lines away from the South China Sea and the Strait of Malacca, and will eventually remove the US dollar from bilateral trade.

Yet China’s move here, as Germany and the Soviet Union found out, will be much easier said than done.

Here’s a lesson in history:

Most geopolitical issues and conflicts are linked to control and/or access to the natural resource base. For example, the United States cut off Japan’s ability to import raw materials in 1940 — before the US officially entered the war.

Now the United States, as the world’s sole superpower, may interfere if it thinks its strategic interest is threatened. After all, it still has military bases around the rim of the Heartland — Japan, Afghanistan, Iraq, Germany and Eastern Europe.

I think part of this dynamic now will be an ‘arms race’ to lock up natural resources in secure, low-risk jurisdictions.

With the wider Asia industrialising on an epic scale, I believe the commodity markets are going to become a central preoccupation not just of foreign policy advisers but investors as well.

The underinvestment and strong demand in commodities in recent years is setting up to put a rocket under resource prices.

And I think evidence shows we’re now moving into the next stage of this resource investment cycle: mergers and acquisitions.

As this ramps up, I believe Australian miners are primed to become takeover targets, not least because Australia is seen as a secure, low-risk sovereign nation with strong property rights.

That explains why I’m constantly on the lookout for potentially great projects in Australia’s mining sector.


Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia