The two most commonly held myths about water are:
1. Water will be the next oil
2. The next wars will be fought over water.
Only one of which is true.
Right now a war is erupting in Iran and spreading right across the entire Middle East. The war may not be about oil, but it has driven the price of oil to over $100 a barrel. Not surprising given that 20% of the world’s oil flows through the Straight of Hormuz.
Water may be one thousand times less expensive than oil, but its value is binary, one drop short on the supply-demand curve and its value shoots up, because demand is inelastic. It’s essential.
Desalination plants are being targeted with drones in the Middle East. So while the war is not about water either, water has become a strategic target. Given that 40-60% of global desalination capacity is in the Middle East, that’s pretty concerning. There is no alternative supply of freshwater in the region that can be called upon if this infrastructure goes down.
The absurdity of the situation is captured in that old engineering joke:
Q) What’s the difference between a mechanical engineer and a civil engineer?
A) Mechanical Engineers build weapons. Civil Engineers build targets.
A sad observation on humanity.
Before we start with water myths, let’s begin with the Origin Story:
Water is life. A search for life, is a search for water. Not oil.
Though life would need a source of energy. Conveniently for us, this comes from a hydrogen bomb, a medium sized star, at a safe distance, 93 million miles away, that has been sending a continual supply of energy, via wireless charging, since the planet formed 6 billion years ago.
Life didnt arise on earth, until the water arrived as a good to the planet 4.5 billion years ago. Via asteroid; the original next-day delivery. There have been no new water shipments since.
Not long after the water arrived, life miraculously appeared about 4 billion years ago using the sun’s energy to fight entropy. Life is ordered matter and the universe tends towards disorder. So all life is a transient battle against entropy, mediated through water, powered by the sun. (Or in rare cases, powered by the sulphide reducing bacteria around thermal vents on the ocean floor).
We are Hydrosapiens. Not hydrocarbo-sapiens.
Solar-powered hydrosapiens. The success of the great civilisations of the world was linked to their relationship to water. Not oil. The ancient civilisations of Babylon in Mesopotamia thrived in the fertile Deltas of the Tigris and Euphrates rivers. The mythical garden of Eden. The Pharaohs of Egypt relied on the Nilometer, to measure the level of the floods each year, to predict yields and determine how much grain to store up, to avoid famine. In China, an Emperors fitness to rule was directly correlated to their ability to govern water. Indeed the entire social and political history of China, can be seen through the lens of water and the constant struggle to control the great rivers, the Mekong, The Pearl, the Yangtze. Known as China’s Sorrow and the Scourge of the Sons of Han. The Naboteans a great desert civilisation in Jordan, harvested the desert rains and this allowed them to thrive in a world where water was precious. The Pre-Inca Wari people of Peru, ‘planted and sowed’ water, high up in the Andes mountains, so they could harvest it downstream, using the Amunas. Angkor Wat, one of the greatest civilisations the world has ever known, was home to 1 million people in a Monsoon climate, and thrived because they build huge reservoirs, visible from outer space. Increasingly, a Monsoon climate, is no longer, confined to South Asia.
Water is the world’s most widely traded commodity, but it can’t be traded internationally.
It is hyper-local. You can’t ship it like we do oil. It defies conventional economics. It’s not a fungible good. But the goods we make with it are. So we ship virtual water. Thank God for globalisation.
The other common myth is that the solution to the global water crisis is desalination. Desalination, is a solution for what David Sedlak calls ‘Water for the Wealthy’,in his latest book, Water for All. It can meet urban demand in wealthy countries. Just consider why it is that 40-60% of the world’s desalination capacity is serving 6% of the world’s population. The economics of the Middle East defy conventional economics. It distorts reality and makes the absurd, possible. Like desalinating water to make snow and planning to host the Winter Olympics in Saudi Arabia. A modern day Tower of Babel. Mans’ hubris knows no bounds, until the power of nature abounds.
We can use desalination to produce water for the wealthy, but not to feed the many. Here is the quick-math reason we can’t use desalinated water to grow food: It takes 1000 kg (liters) of water to produce 1 kg of grain. The current price of grain is around €150 per ton. Desalinated water costs about $0.30 per cubic, meter, ex factory just for the desalination component, forget the cost of moving it. That’s $300 per thousand cubic meters, ex-factory. So it would more than treble the cost of grain, raising it to $450, but in reality, well north of $600 per ton. And if you were to use seawater to get the freshwater, you would produce 35 times more salt than grain. In other words it would cause a global economic food crisis.
Water is not the Next Oil
It’s more serious than that. Unlike oil, there’s no substitute. Once oil is used up, its gone. We cant really ‘use up water’. But we are draining down fossil groundwater.
Water is very different to oil on an economic basis. Water is 1,000 times less expensive than oil, on a volume for volume basis. $1.70 for 1m3 of water, versus $1.70 per litre of gasoline at the pump.
Water itself is not assigned any value. We just internalise the cost of treating and moving it in the economic model. Unless we price in risk. Which industry is starting to do now with shadow pricing models that internalise market externalities and help support the economic justification for water re-use, where its not regulated yet. Though regulation is quickly moving to internalise societal costs as law-makers realise hose-pipe bans are unpopular with the electorate, while mandating corporate water re-use is.
Water lends itself to a natural monopoly, which is why privatisation doesn’t create competition. Its not like electrons in the grid. If you are living in Yorkshire, you are buying water from Yorkshire Water. There is no competition. Hence the need for a regulated market.
Monopolies, in general, tend to prolong the life of a natural resource and maximise its value to those who control it, just look at OPEC. They set the price of oil and this has the effect of throttling demand. True unregulated competition would speed up exhaustion of a natural resource and lead to lower overall value to the owners. Unfortunately groundwater abstraction is NOT controlled by a ‘monopoly’. Its generally handled by individual water rights, but this falls down, because everyone’s straw is in the same aquifer and it incentivises the perverse outcome of the trajedy of the commons. The Ogallala aquifer, the aquifers in Colorado, they are not controlled by a monopoly, and metered out, its a free for all. How do you like them avocados?
The next Wars will be Fought Over Water
Wars are already being fought over water, or certainly it is leading to localised conflicts. These have been increasing. Though there are still more water treaties, than water wars on record. Tensions are bubbling up between India and Pakistan, with India threatening to reduce the flow forward to Pakistan. In the Ukraine, water has been weaponised. Rivers like the Ganges may not flow year round, with groundwater drawn down and the glaciers in retreat. Tensions will increase. The value of water will increase.
The Untold story of the Great Water Heist
The great water heist is happening right under our noses, in plain sight. Like that meteor approaching Earth in the movie Don’t Look Up. The world’s water bank, where 99% of all Liquid freshwater is held, is underground, and is being drained down, to feed the planet. The green revolution, the agricultural miracle that allowed us to feed 8 billion people and make the spectre of widespread famine a thing of the past, was heavily linked to our ability to pump water from this water bank. 40% of all food production is from irrigated land and about about 70% of that water is either coming from groundwater, or groundwater fed rivers. Private equity funds are buying up water rights around the world. The guy behind the Big Short, is buying water rights.
So in summary, the world’s most widely traded good is water, yet its a non-fungible good. It is a human right and yet more people have access to a mobile phone than safe drinking water. It is one thousand times less expensive than oil, and yes, wars will be fought over it. The value of all agricultural land is linked to water availability, and that value of that land will be going to zero once those wells run dry.
The news right now in Iran is about the effect of the conflict on oil resources. Though prior to this, the news at least in my world, was that Iran is facing an unprecedented water crisis, with over 70% of major aquifers overdrawn and renewable water resources declining by over a third in two decades.Tehran is under extreme stress, with five main reservoirs at critically low levels and potential “day zero” scenarios, driven by climate change, mismanagement, and aging, inefficient infrastructure. A major causal factor in conflict in Syria can be traced back to a drought causing people to move to the cities from rural areas from agricultural land. So is water the next oil? No, it’s same-same but different.
