The previous peak oil articles have looked at several issues including the concepts of reserves and resources, conventional vs. unconventional oil, and the role of technology and economics in mitigating or accelerating oil depletion. In this article we’ll analyse the impacts of peak oil, and in the next one we’ll look at solutions.
Almost all aspects of the modern global economy are dependent on oil to a greater or lesser degree including agriculture, military, transportation, and industry. As Robert Hirsch stated in the Hirsch Report, “the problem of the peaking of world conventional oil production is unlike any yet faced by modern industrial society”.
The economic implications of peak oil include the risk of a permanent economic recession and indefinite financial crisis unless other fuels take the place of oil in the economy. As there exists a clear link between GDP growth and growth in oil consumption (e.g. here and here) “future growth in GDP must be dependent upon fuels other than oil if it is to continue as expected“.In order to reduce or prevent these adverse outcomes the use of oil in the economy must be “reduced to the point where it plays only a very minor role…but this needs to be accomplished in advance.” Authors such as Charles Hall et al. help illustrate the dependence of the global economy on oil as
“…it is hard to ignore the coincident timing between the increases in the real price of oil culminating in the summer of 2008 and the subsequent financial collapse towards the end of the summer/fall 2008.” [x]
Peak oil will also affect other commodities and economically important activities, such as our extraction and use of other energy sources. As James Leigh states,
“…without oil and its petrochemical products as an energy source, we are not able to use heavy machinery, and ships and transport vehicles. And so without oil and these machines we will not be able to neither extract nor transport coal, gas and uranium, nor the oil itself.” [x]
David Murphy and Charles Hall also believe that peak oil will lead to an “economic growth paradox”:
“…increasing the oil supply to support economic growth will require high oil prices that will undermine that economic growth…[it] leads to a highly volatile economy that oscillates frequently between expansion and contraction periods.” [x]
The forced use of lower EROI fuels will ultimately will redirect energy from other economic activities to the refinement and extraction of these sources as unconventional sources “generally require more energy consumption at all stages of the processing chain, with the result that the net energy available for productive uses in society is likely to be reduced“. As Charles Hall so gloomily predicts:
“…as the amount of net energy declines due to peak oil and declining EROI, humans will increasingly give up categories higher on the pyramids and concentrate increasingly on the more basic requirements including food, shelter and clothing. What this may mean in modern society is that performance art, then expensive vacations, then education, then health care would be abandoned by the middle class as the economy is increasingly restricted. Whether this can be reversed by diverting where and by whom we chose to spend such surplus money or energy as we have will be an increasingly dominant challenge to society.” [x]
As expected, the peaking of oil supplies with have important geopolitical ramifications as the number of oil-exporting countries is reduced over time, redistributing political and economic power to the remaining importers. The number of net oil-exporting countries will be reduced from 35 in 2004 to between 12 and 28 by 2030, and some authors claiming that conflicts like the Iraq War are precursors
“of the type of conflict we can expect under conditions of peak oil. That is, military action will be taken by countries intent on preventing disruptions in the production and transport of oil.” [x]
Additionally Dr. Jörg Friedrichs postulated a variety of hypothetical courses countries would take in the event of a “global energy crunch”. They include recourse to military strategy to control oil supplies, “totalitarian retrenchment” in a fashion similar to North Korea following the collapse of the Soviet Union, and “socioeconomic adaptation” to peak oil (which Friedrichs states “would be more difficult for people in Western countries, where individualism, industrialism and mass consumerism have held sway for such a long time that a smooth regression is hard to imagine”). Further, the rising supremacy of NOCs (National Oil Companies) compared to IOCs (International Oil Companies) would mean that in a peak oil scenario the major IOCs would face their “ultimate demise” within the next twenty years.
Disproportionate effects on the “developing” world are also predicted, as weakened or non-existence economic growth would massively affect “unemployment in poor megacities and in immigrant ghettos“, and a conflict between rapid oil depletion and the desire of most “developing” countries to rapidly industrialise may “work together to facilitate civilization clash in frantic efforts for each political bloc to secure the world’s oil resources” leading to the creation and destruction of old and new superpowers.
The overwhelming reliance of modern transport methods on oil means that the rising of oil prices in a peak oil scenario will incur a rise in transport costs. Shipping is particularly vulnerable, accounting for “96 per cent of world trade transport and 70 per cent of all the freight carried globally“. Even transport infrastructure components like roads and paving are “unthinkable” without oil and oil-derived products. Peak oil in essence will lead to what Fred Curtis calls “peak globalization“, as global supply chains become shorter due to the effects on “both transportation costs and the reliable movement of freight”.
Albert Bartlett once said that “modern agriculture is the use of land to convert petroleum into food“, and this typifies agricultural systems under capitalism which are characterised via mechanisation, long transport distances, monocultures, and reliance on oil- and natural gas-derived fertilisers and biocides. This overwhelming dependence on fossil fuels (especially oil) means agricultural systems and thus food products in the industrialised world are extremely vulnerable to oil price fluctuations and reductions in oil supply. As the Government Office for Science reported,
“The single external commodity that has the greatest effect on food prices is oil; it is also one of the most volatile. Oil prices affect food production through changes in the costs of energy, petrochemicals and fertilisers used in agriculture.” [x]
Our food systems that supply us with cheap, plentiful foodstuffs sometimes from hundreds of miles away rely on fossil fuels, and so quite simply are not sustainable. As Richard Heinberg warned, “the agricultural miracle of the 20th century may become the agricultural apocalypse of the 21st.”
In the final article of the peak oil series, we’ll look at the plethora of possible solutions and adaptation strategies humanity can use to face the looming problem of peak oil.