War, inflation on mind of former Dow Chemical boss and current Brisbane Olympics president

The world faces the potential of a ‘hot war’ as tensions rise in the Middle East, says former Dow Chemical Company chief Andrew Liveris. And that means inflation won’t be heading south soon.

Brisbane 2032 Olympic Committee president and former Dow Chemical chief executive Andrew Liveris. Picture: Britta Campion

The world faces the potential of a “hot war” with tensions rising in the Middle East, the former chief executive of Dow Chemical Company, Andrew Liveris, fears.

In an interview with The Australian to promote his new book, Leading Through Disruption, Mr Liveris said rising geopolitical risks, including tensions in the Middle East, would mean there would be continued inflation over the next few years.

He said the Australian economy, which had benefited from high commodity prices in the past, would be hit by the slowdown in the Chinese economy.

The world was now facing an economic outlook “somewhere between recession and stagflation with inflation”, Mr Liveris said.

“It’s a really bad combination,” he said. “Governments are going to have trouble balancing the ­budgets.

“We are very fortunate in Australia because we have had the benefit of high commodity prices on coal, gas and iron ore. But that won’t last, because the markets for these products are starting to decline, which is already happening in China.

“The Chinese economy is becoming weaker by the moment, which is going to hurt commodity prices.”

Mr Liveris said the world was facing the highest-risk environment since the period between World War I and World War II, which saw the rise of Hitler and Nazi Germany.

“A hot war is not out of the question,” he said.

“We have a rogue actor in Russia which can buddy up with China and create a new world order.

“The period between the two wars was a very high-risk environment for the world and we are in that period of time.”

Mr Liveris, who is president the 2032 Brisbane Olympics Organising Committee, chairman of Lucid Motors and BlackRock Long Term Private Capital and a director of IBM, Saudi oil major Aramco, Worley and Novonix, has been a long-time adviser to the Saudi Arabian government on ­energy issues.

Mr Liveris said there had been negotiations under way in the Middle East to try to ease tensions before the deadly Hamas attack on Israel two weeks ago.

“The issue (of Israel and Palestine) was progressively being solved,” he said.

“The Abraham Accords (were) put in place by the Trump Administration (in 2020), and the United Arab Emirates and other countries like Kuwait and Bahrain were beginning to work with Israel and Saudi Arabia at the table.

“There was hope that stability would come to the region, but this (the attack on southern Israel) has – at a minimum – put a pause to it. Hopefully, in the worst case, has not stopped it.”

Mr Liveris said the combination of geopolitical uncertainty and post-Covid shifts in attitudes to supply chains would mean that inflation would persist for years.

But the Australian economy would also be hit by the slowdown in China.

“China’s overbuilding means that it now has a massive problem with its real estate,” he said. “It needs to keep employing people and find jobs for another 20 million people a year. But its economy is slowing, which is going to hurt all commodity prices.”

Mr Liveris said the pandemic had prompted governments to review supply chains, seeking sources of supply closer to home.

“It has meant that many countries, notably the US, have put in place top-down policies to build factories in their home country, versus relying on imports,” he said.

“Onshoring and friend shoring has become an instrument of government. But it is adding factories and cost structures which are not in the best locations.”

Mr Liveris said this was an inflationary force, as was the Russian invasion of Ukraine and the tensions in the Middle East, which had increased the global price of oil.

He said the world was moving to globalisation 2.0, which was one of more regional trade, but this was “expensive and inflationary”.

There was also the added demand for more skilled workers as supply chains moved closer to home.

“Cost-of-living pressures are increasing, and governments only have one way of coping, which is raising interest rates,” Mr Liveris said. This was ushering in a new era for managers who had never had to live with persistently high inflation.

“We haven’t had something like this for 30 years,” he said. “There is a whole generation of managers who have never lived through it. I think we are going to have it for the next several years.”

His comments come as Anthony Albanese confirmed plans to visit China in early November, the first visit to the country by an Australian leader since Malcolm Turnbull’s trip in 2016.

Mr Liveris said the Albanese government was “doing a good job of understanding that economically we cannot dislocate from China”.

Countries such as Australia needed to make a distinction between countries that were strategic partners, and those that were “transactional” partners. “In the second era of globalisation, the choices are who are your strategic partners and who are your transactional partners?” he said.

Australia had countries such as the US and Britain as strategic partners. These had “shared values” and were countries with which to share trade secrets and proprietary technology.

Mr Liveris said Australia had a more transactional relationship with China. “This is a win-win where they buy our staff, we import their electric cars and finished goods and appliances. We have a healthy trade agreement with them. We do that as a trading partner. We shake hands and do it in a friendly way.”

He said he believed the Albanese government understood that more nuanced position.

Mr Liveris said the use of gas, combined with carbon sequestration, was the best way to move forward in the transition from coal to renewable energy.

He agreed he had been “pilloried” for this view when he was involved in a report on the energy transition for the Morrison government a few years ago. But he said that the Albanese government had “come to the conclusion that if you don’t have gas as a transition fuel, your power prices are going to go through the roof”.

He said technology to produce green hydrogen at scale was “five to 10 years out”.

Gas was the only answer in the near term if coal was eliminated, as well as “small nuclear reactors which are also becoming very ­affordable”.

Carbon sequestration and storage could be used to produce “blue hydrogen”. “This is what Saudi Arabia is doing,” Mr Liveris said.

He said this was the argument he had put in the report for the Morrison government, but its recommendations had been “lost in the rhetoric”.

“We have gas in this country but we export 99 per cent of it. Other countries are using our gas to do exactly what I said,” he said.

Mr Liveris said Australia should be prepared to adopt a domestic gas reservation policy when it came to the development of new gas fields or those that did not have contracts with foreign buyers.

Western Australia already has a domestic gas reservation policy that requires that 15 per cent of the gas produced to be kept for local use. He said this policy could be adopted for the development of gas fields in the Bowen Basin in Queensland, the Beetaloo Basin in the Northern Territory and at the proposed Santos development in Narrabri in NSW.

Mr Liveris, who spent most of his working career in the US, said the US presidential election campaign next year would not be a “big disrupter” despite the prospect of former president Donald Trump getting the Republican Party nomination.

But he said that if Mr Trump did get elected “we could go back to a world where geopolitics could change dramatically”. He said this could see the return of a world where the US president was critical of Europe and did not want to be as involved with NATO and became friendlier with Russia.

‘Don’t be afraid to find your voice’

Business leaders should be prepared to speak out on social and political issues such as the situation in Israel or the Indigenous voice to parliament, says former Dow Chemical CEO Andrew Liveris.

“Chief executives have a podium, and they should say what is their value system, (and speak about) what just happened – whether it is right or wrong,” he said. “If your value system is pro-human and respects people’s integrity, then (when something happens) you have to speak out against it.”

Mr Liveris, who is president of the 2032 Brisbane Olympic Organising Committee that backed the voice, said the referendum failed because its proponents failed to adequately explain it.

But he said business should be prepared to back more action to improve the conditions of Indigenous people, especially those in remote areas.

“The voice and the support for the voice by corporates was the notion that we should give Indigenous people some ability to state their issues to the highest government in the land through some sort of advisory group,” Mr Liveris said.

Business and the broader community now had to be prepared to step up and focus on ways to help the Indigenous community.

“The product from the debate should not be divisiveness, it should be that we have shone a light on the problem. Let’s use that light to solve the problem, rather than wringing our hands in remorse that it didn’t pass,” he said.

“Corporates with a purpose should be part of the solution. They should help communities on the ground, especially companies that operate in Indigenous communities – mostly mining companies – to have community-centric inclusiveness for Indigenous people.

“Our Indigenous people are living in horrid conditions – all you have to do is to go to some of the missions to see that.

“We need to do a better job of treating them fairly. Treating people fairly across the country is a first-world country’s mandate.”

Mr Liveris said business leaders needed to be actively involved in communities and not leave it up to politicians to solve social problems.

“Businesses need to think about multiple stakeholders all the time,” he said. “They need to make sure they take care of their employees and their communities and earn a social license to operate which enables them to get the best people and to get the local community support for their investments.”

Mr Liveris said this included CEOs also speaking on their views of what was happening in the Middle East.

“We have this egregious situation in Israel. Where do we stand on that?” he said.

“We have to be pro-peace and pro-prosperity for the Israeli and Palestinian people and anti-terrorism. We were obviously shocked – and companies are out expressing shock at what happened with Hamas – but that doesn’t mean I’m against Palestine.”