As we know, on the day of the Beijing Olympics 2008 opening ceremony, a war was brewing between Georgia and Russia. We do not know what the quarrel between Georgia, Russia and the disputed provinces of South Ossetia and Abkhazia was all about. Claims of genocide by Georgia on South Ossetia were made by the Russia, while Georgia claimed that Russia was trying to bully its tiny neighbour. Who is in the right?

We do not know.

But as we said before in Are we in a long-term inflationary environment?,

The implication is extremely unpalatable: some nations will have to rise at the expense of the others, which may result in armed conflicts (touch wood, heaven forbid!).

We believe the conflict was at the root about jostling and pushing for the influence and control of natural resources. Russia is an energy rich nation- much of Europe is dependent on Russia for its gas supplies. It also has abundant reserves of oil too. And disturbingly, Russia has shown to have no qualms in using energy to bully its neighbours and settle disputes.

In terms of natural resources, the Caucasus is a very strategic region. As this map in the Wikipedia shows,

Detailed map of the Caucasus region (1994), including locations of economicaly important energy and mineral resources: South Ossetia has reserves of lead and zinc, Abkhazia has coal, and Georgia has oil, gold, copper, manganese, and coal.

In terms of oil, this article from The Age explains,

While Georgia does not produce oil itself, US and European energy firms have counted on the pro-Western country – sandwiched between Russia and Iran further south – to host a conduit for oil and gas exports from Azerbaijan.

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Since President Mikheil Saakashvili took power in 2004 two new pipes have been built, and the explosion of violence between Georgia and huge northern neighbour is threatening those, notably the Baku-Tbilisi-Ceyhan (BTC) pipeline.

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Transporting oil through the Caucasus is designed to make the West less dependent on supplies from Russia, which has shown worrying willingness to close the taps in disputes with other ex-Soviet states in recent years.

Make no mistake about this: in the years to come, countries that own and control energy reserves (and natural resources in general) will be the ones calling the shots. As we said before in The Problem that can throw us back into the age of horse-drawn carriages,

… supplying environmentally sustainable energy indefinitely at a rate fast enough is a colossal global problem that must be solved. If not, the latter generations will not live better than the current generation.

Many of the oil fields located in US-friendly oil producing nations are in decline. The implication is that as the years goes by, more and more of the world’s energy are produced in nations that are not so receptive to the US and its Western allies.

It is no coincidence that we are seeing conflicts in such regions of the world.