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Essay: Influence of politics on the chemical industry

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  • Published: 15 October 2019*
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  • Words: 1,382 (approx)
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In this discussion, I will be exploring the influence politics holds over the chemical industry and the way in which historical and political events have determined the development of the industry.

The initial growth of the British chemical industry is said to be a direct result of contemporary social need, which provided apt opportunity for further development.1 World War One in 1914 found Britain ill-prepared and unable to satisfy the demands of the warfare which awaited. Anteriorly Britain’s Chemical Industry had become stagnant, failing to make advances in areas such as the manufacture of synthetic dyestuffs and synthetic drugs, meanwhile Germany made unprecedented progressions. Therefore, this opportunity was seen as a chance for regained prosperity of the British industry.2 Despite being unprepared, Britain’s chemical industry produced a creditable response, creating careers, respectable connections in research and gaining international recognition and dominance in the postwar world. Amid the turmoil came the emergence of chemists with a wealth of skills and knowledge which had been developed in answer to the demand.3

Similarly, the synthetic organic chemical industry emerged in America during World War One, an industry previously saturated by German firms. The war catalyzed the American chemical industries transition to cater for demand from both domestic and foreign demand.4 Illustrated by the manufacture of dyestuffs, America imported $10 Million worth of dyestuffs prior to 1914, however by 1917 their output was sufficient to exceed the national demand.5 This rise is believed to be due to the U.S policymaking and the “industry’s consolidation as trade associations”.4 Many of the policies achieved are believed to be borne of the war, as they would have previously been considered unattainable. Therefore, to an extent the growth and success of the American Chemical Industry can be attributed to the war.4

The effects of World War One were not only witnessed in Europe, as the Japanese Chemical Industry also saw a rapid period of growth, leading them to become a major industrial power. This was short-lived, however the reemergence of the chemical industry amid the devastation caused by World War Two led to regained prosperity, with shipments doubling in value over the decade. The industry was once again driven by social need, with the government implementing policies and calling upon the industry to supply chemical fertilizers and dyes for clothes.6 The declaration of an oil embargo by the members of OPEC, led to an oil crisis which caused the oil price to quadruple in value.7 This caused a shift in the direction of the industry: from continued growth to diversification, which drove the chemical industry to establish more efficient facilities by enlarging them and developing new technologies.6

It is evident that political turmoil and international disruption have played key roles in catalyzing the development of the Chemical Industry globally. In the UK, US and Japan, the industries rose in answer to the national demands in a time of need and established a solid foundation upon which they have built upon.

Furthermore, the increasing importance placed upon environmental wellbeing has led to new policies being conceived, which has been a fundamental factor in the direction of the chemical industry.8 Multiple protocols have been used as regulatory measures in hope of a greener industry. The Kyoto Protocol, ratified in February 2005 by 192 countries, established a legal distinction between living carbon and dead carbon.9 Living carbon is an abundant and vital building block for the global economy, for example trees and crops produce a vast array of derivatives including dyes, medicines and fuels. This policy was implemented by imposing financial penalties for the burning of mineral carbon, whilst the use of vegetable carbon was rewarded. This has encouraged the chemical industry to find viable alternatives, for example when leaded fuel was phased out, there was a greater demand for ethanol.

Furthermore, this was reinforced by geopolitical forces increasing the cost of chemicals produced from dead carbon, whilst technological developments simultaneously reduced the production costs for chemicals produced from plants.10 A successful example of a greener process is in the production of phenol, N2O is a greenhouse gas from the manufacture of adipic acid (a component of nylon) which is recycled and used as an oxidant.11

These changes and examples indicate an ever-increasing shift towards a living carbon based industry, however this will require time before it takes full effect as alternative viable methods, resources and government involvement need to be sought.

Oil is the primary feedstock for the chemical industry, and is one of the most volatile commodities. The continuous fluctuations are often attributed to extreme events which result in long term impacts such as the Yom Kippur War, Iranian Revolution and invasion of Iraq. Events with short term impacts, irregular events, may also contribute, for example hurricanes or strikes of oil workers.12 When forecasting crude oil prices, shocks of extreme events must be taken into consideration as they are occurring more frequently. Statistical methods are often used to quantitatively determine the effect of extreme events and therefore forecast impending shocks and minimize the impact.12

As aforementioned political instability, especially in the Middle East has grave impacts upon oil prices. In August 1990, Iraq invaded Kuwait for a period of 7 months before military failure and US military intervention in January 1991. This led to a 56.56% increase, however as time persisted it gradually fell.13 These examples illustrate the sensitivity of the market to political events. Extreme events such as warfare mean production cannot fulfil the demand, which leads to a rapid price increase.

The chemical industry relies heavily upon oil, especially in the essential building blocks for the industry such as aromatics, ethylene and propylene. Consequently, the volatility of oil prices is inextricably linked to chemical markets globally. The recent decline in oil price temporarily increased profit, especially for energy-intensive and feedstock intensive base chemicals whose price is tied to oil, however due to a lack of demand this can be short-lived. Demand patterns are also altered, as “the new oil-price environment begins to inform consumers’ and companies’ investment decisions”.14

More recently, the outcome of the Brexit referendum shows that the UK has chosen to leave the European Union, this has and will have direct consequences on the chemical industry. The result would have been a disheartening for much of the chemical industry; considering a recent survey conducted by the Chemical Industries Association (CIA) showed that 62% of their 93 member companies wished to remain, and none believing that leaving the EU would be beneficial to their business.15 The volatility within the markets creates a lack of certainty in regards to the future challenges that may be faced by the industry. The vote could be detrimental to the industry, creating instability and a lack of integration; making investment less appealing.

The result of this historic vote will not only have a significant impact on the British Industry but the European industry and economy too. In 2015, €18.5 billion worth of goods were exported to Britain from Europe, making Britain an eminent trading partner.16 Brexit could therefore add complications to the current process of trade. It is likely that the UK will seek to become part of the European Economic Area (EEA), and implement a system similar to that of Norway. This would be advantageous to the industry as it would enable the free movement of goods and maintain existing trading partnerships, by continuing to follow EU directives and regulations. However, this could still be met by contracting profits due to higher import and financing costs, it has already been calculated that in the worst-case scenario losses in sales could amount to £7 Billion.17

Within the UK, the chemical industry employs 105,000 people.18 The mobility of employees is of great importance for collaborative work, research and academia. It is yet to be seen whether current restraints on non-EU citizens will be applied to EU citizens; as this could have a significant impact on the progression and productivity of the chemical industry: international scientific talents opportunity of obtaining a job in the UK may be hindered in efforts to reduce immigration. Consequently, this could lead to a ‘brain-drain’ within the industry, as people may not feel valued or welcome due to the result.19

The chemical industry is undeniably impacted by global politics, whether it be directly or indirectly. The growth and expansion of many industries has often been due to warfare and political instability.

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