The Silent Oil
By James Howard
05 September, 2005
this article we look at how just because developed economies are not
suffering like they did during the 1970s that the oil crisis has not
already begun. The final oil crisis has begun, silent to us, but dangerously
Adjusted to modern
day prices, the historical record price for oil was $80 as a result
of the second 1970s oil crisis a crisis brought about by
political circumstances, not geological realities. The 25th August 2005
saw the price for a barrel of oil pass $68, just $12 from that high.
Lessons from history suggest that high oil prices mean bad news for
the economy, thus our jobs and way of life.
Yet analysts feared
the worst when oil hit $30, then $40, then $50, and then $60. Somehow
strong Western economies have shrugged these prices off and we are left
asking whether anything has really changed for the major industrial
economies so dependent on cheap oil? At present we do not seem to be
in the same dire straits that the 1970s oil crises brought upon
Not that bad in
the Western World
Apart from an increase
in the cost of raw materials and in filling up the automobile, resulting
in stronger inflationary pressures, making us (the Western World) a
little less well off, it isnt that bad. We can still get all the
food we want from the other side of the world, flights are still historically
cheap, it isnt so bad that car drivers are sharing their daily
commute, and economic growth has not gone into reverse - at least, not
yet. The Boston Globe wrote recently:
So far, expensive
energy has not had much impact on the economic expansion. The US economy
grew at a healthy 3.4 percent in the second quarter and most forecasters
expect even stronger growth for the rest of 2005.
In the same article,
Richard DeKaser, chief economist at National City Corp., a bank based
in Cleveland, said that every $10 increase in the price of oil shaves
roughly a half a percentage point off the economy's growth rate, and
that higher oil prices would slow but not derail the economy. It might
not be until a $100 barrel of oil emerges that a recession will be triggered.
And a recession equals demand destruction.
I am not an economist
but I suspect that if demand dropped off at 2 to 3% a year in line with
an economic recession, and oil supply dropped off at a similar rate,
then oil will stay at around $100 if we assume we pass the global peak
in the rate of oil production. It doesnt take Chevron to tell
us that the era of cheap oil is over (although they do with their website
and campaign willyoujoinus.com).
Beginning of "The
So maybe everything
is fine until that $100 barrel mark. People talk of an oil crisis, but
surely, since we are waiting for the $100 barrel, there is nothing to
worry about. Right? Wrong. Around the world, silent to us, the oil crisis
has truly begun. They are at the beginning of what some are calling
The Great Decline.
Just as rising sea
levels threaten to flood low-lying lands unable to protect themselves,
rising oil prices threaten countries with weak (low-lying) economies.
Rising oil prices are a rising tide, and there are many examples to
look at. The countries that will be first affected by rising oil prices
are those with a more youthful oil-dependent economy or those that do
not have the economic strength either as a nation, or as individuals,
to cope with it.
Eritra - the oil
game is over
In October 2004,
petrol sales in Eritrea had to be suspended - conserved only for essential
use. Eritrea was struggling with the economic consequences of its border
war with Ethiopia. Ethiopia used to be Eritreas largest export
market, so with the border closed and the debt of war hanging around
its neck, Eritrea found itself in a position where it was simply unable
to pay for petrol due to a foreign currency shortage. Since February,
private companies have not been allowed to import oil. The BBC wrote
of the situation, The usually busy streets of Asmara have almost
entirely cleared of private cars as the rationing of fuel bites.
What this means
is that there is one less bidder at the Worlds oil auction. Eritrea
is among the first but it will not be the last. Furthermore, Eritrea
is one of the most food-aid dependent countries in the world. However,
although Eritrea is entirely dependent on imports for its oil, it is
not an economy heavily dependent on oil. That is not to say that oil
would not be beneficial to their country as it could give them the energy
to fuel farm machinery, irrigate land, transport crops and make them
self-sufficient in feeding their population.
The oil game and
any hope for the kind of prosperity seen in The West is effectively
over for Eritrea. With Hubberts Peak in sight there is little
hope this country will rejoin the international oil game. It is almost
in a catch 22 situation it needs oil to get back in the game,
but it cant get the oil without being in the game.
to feel the pressure
Indonesia is another
country that is beginning to feel the pressure (again) of rising oil
prices. Once a net exporter of oil, this current OPEC member is an example
of a more industrialised country that is now struggling, not just economically,
but socially and politically. Fuel is subsidised in Indonesia but the
rising oil costs have had to be passed on to consumers and that has
proved increasingly unpopular. However, unless Indonesia removes the
subsidies, experts predict the economy will suffer. As the CIA Factbook
on Indonesia notes, Indonesia became a net oil importer in 2004
due to declining production and lack of new exploration investment.
As a result, Jakarta is not reaping the benefits of high world oil prices,
and the cost of subsidizing domestic fuel prices has placed an increasing
strain on the budget.
The Indonesian government
is caught between a rock and a hard place if they remove subsidies,
there will be civil unrest, and if they dont, the economy suffers.
However, they will be familiar with recent history. In May 1998, during
a period of severe economic problems and fears of foot (is this right
word???) shortages, the Indonesian government announced IMF-mandated
fuel price hikes. Riots followed, and the fuel prices were quickly rolled
back. What followed were 17 days of chaos resulting in President Soeharto
resigning. It is thus no shock to find that Indonesia is listed in the
U.S Department of Energy Oil Hot Spots. The extra profits
that can be made from its 4billion+ barrel oil reserves as oil
prices increase will ameliorate the situation to an extent but there
is no doubting the damage the oil crisis brings to Indonesia.
Philippines - oil
prices having an impact on daily life
The oil crisis is
getting particularly acute in The Philippines. Already, President Macapagal-Arroyo
is talking of rationing oil if prices dont fall and conservation
efforts not made. Furthermore, there are calls for political unity across
all parties, as well as demand for the public to take this problem seriously.
"We cannot afford a divided nation amid this oil crisis. We have
to unite to ensure and survive, and let not the people blame their leaders
for not taking up the challenge", said presidential spokesman Ignacia
Bunye on August 15th 2005. Unlike Indonesia though, there seems to be
a wider acceptance that the oil price is market-driven. But the oil
crisis is having an impact on daily life.
Employees have three
rest days every week; supermarket workers are dismissed one hour earlier
at night; streets are only coloured by neon lights after 9:00 p.m; and
night golfing lovers have to temporarily quit their hobby. Gas stations
are operating only 20 hours a day instead of 24. "To implement
mandatory and voluntary measures for fuel demand restraint and efficient
use of electricity will help combat adverse effects of relentless increase
in world oil prices on the local economy", the DOE said in a statement.
There are other measures proposed too, including fuel rationing, recycling
waste oil, regulation of air-conditioning and regulation of motor vehicles
to conserve fuel and relieve traffic congestion.
The potential for
such a situation throughout the world is clearly expected by international
agencies. On the 28th April 2005 the IEA launced a book called Saving
Oil In A Hurry which is a New analysis of measures that
governments can use to save oil in a hurry. Measures suggested
include telecommuting, car-pooling, transit use and ecodriving
(fuel efficient driving styles), among other measures.
The stark example
of North Korea
One of the starkest
examples of the silent oil crisis is in North Korea, where there is
a virtual news blackout. The news that does get out is incredibly worrying.
This is a country that is totally isolated to the world and where the
daily food rations are just 250 grams. These meagre rations are the
simple sign of a country unable to feed itself due to a lack of fertiliser
and farm machinery. Nor does North Korea have the fuel to run irrigation
systems or power tractors. The population of North Korea was able to
increase, boosted by energy and food imports from its Soviet allies
during the Cold War. Now that support has gone, the carrying capacity
of the land is below that of the population levels. As Edward Goldsmith
wrote for the Global Warming Crisis Council:
If three million
people starved to death in North Korea in the last few years, it was
partly because, as a result of the collapse of the Russian market which
absorbed most of its exports, it could no longer afford to import the
vast amount of oil on which its highly mechanised, Soviet inspired,
agricultural system had become so totally dependent. Its farmers
had simply forgotten how to wield a hoe or push a wheelbarrow.
An article in the
Seoul Times called Glimpses of a hermit nation paints a
dire picture of a country deprived of energy, although its problems
also come from choosing not to trade internationally.
A re-emerging energy
crisis in Cuba
Cuba is often touted
as the flip-side to North Korea. Although not totally isolationist,
the collapse of the Soviet Union left Cuba adrift with much reduced
oil imports and in a fairly similar situation to North Korea. Nonetheless
it has managed to find a way to get by on less and less oil not
without struggle. A report by CommunitySolution.org posited the country
in a positive light, considering its resources. But an aging energy
infrastructure has seen an energy crisis re-emerge in Cuba. Recent power
outages have caused small protests and prompted comparisons to the early
1990s power crisis that resulted in the 1994 rafter crisis as thousands
of Cuban refugees headed to South Floridas shores. Billions of
dollars are said to be needed for the power plants and oil to alleviate
Cubas immediate energy problems.
There are many more
countries with similar problems and there will be those who have never
had the chance or will ever have the chance to fully industrialise or
reach the levels of prosperity enjoyed by so many in economically developed
nations. For the environment, this may be a good thing but there is
no doubt that economic prosperity is one path to battling problems such
as hunger. This is not to suggest that fossil fuels such as oil are
a magic fix for all the worlds woes to be dependent on
something unsustainable is a mistake, especially when that mistake will
ravage your climate and make surviving the great decline even harder.
What we have learned
from the last 100 years is that having oil makes work easier and more
profitable and enables a way of living otherwise impossible. Without
oil, work becomes harder, less profitable and limits your options. The
rising tide of oil poverty will drown country after country, until even
the high lands become low lands.
Signs of an oil
crisis in West
The signs of an
oil crisis are already here in the UK, in Europe and also in the US,
even if is still too inaudible to be heard as a serious warning by the
general public. However, France's prime minister, Dominique de Villepin
is already giving that very warning when he told a news conference on
the 16th August 2005 that, This crisis, we know, is likely to
last. All the factors have come together for oil to remain expensive
in the years and decades to come," he said. "Our refining
capacity is saturated and cannot adequately cope with French demand."
This is a crisis
because oil enables growth and growth is the aim of most individuals,
businesses and nations. If the aim was not growth but sustainability,
this would not be an oil crisis but an oil opportunity. As it stands,
without increasing amounts of cheap oil, growth becomes ever more difficult
to achieve. And not just growth but even more basic things such as providing
food, warmth and water will become more of a challenge.
Many of the
truckers who distribute produce are charging higher prices or getting
out of the business, making it harder for farmers to get their crops
Fertilizer manufacturers are also facing much higher
domestic natural gas prices, driving the prices they charge higher,
a report in the NCTimes revealed. It is not much better in the UK. In
April 2005, a story in The Herald revealed, Farmers in Britain
are beginning to feel the pinch. A decade ago, when the value of malting
barley was close on £150 per tonne, haulage rates were a minor
issue. However, with grain now selling for little more than £80
per tonne, the slice carved off by transport charges bites hard. The
added factor in the farming equation is that the price of fertiliser
has shot up by at least 30%, while the availability has gone down dramatically.
The plastics industry in the UK is also under threat by rising energy
costs, according to Plastics & Rubber Weekly. If you listen in the
right places, you will see the oil crisis is maybe not so silent.
As person after
person, business after business and country after country drops out
of the scramble for oil, those still in the game will be able to continue
and feel that things are alright. We must take warning now because even
though it may be The Philippines today, in 30 years, with North Sea
oil depleted and Britain struggling with huge levels of debt, it could
Fuel poverty - a
new social evil
The oil crisis gets
louder, not just country by country or business by business but person
by person as well. The silent oil crisis has indeed begun in the UK
with fuel poverty being called a new social evil. According
to the BBC, latest figures suggest there are currently over two
million households across the UK that cannot afford to keep adequately
warm at a reasonable cost. As energy prices rise, this number will go
up. The consequences are enormous. Fuel poverty can and does kill.
In addition, as oil prices increase, this will add to inflationary pressures
that will, as a result, see interest rates rise to cool inflation. This
will bring about very tough times for the average Briton who is said
to have £5000 of person debt each and unsustainable levels of
And the oil crisis
has many stark implications other than simply economic or agricultural
ones. On a global stage, Iran, a country that has passed its oil production
peak, is looking to build domestic nuclear power to compensate, and
maybe also to develop nuclear weaponry to keep at bay outside interests
with eyes on its remaining reserves. With America none too keen on this
situation, the potential for conflict, as a result of the oil crisis,
is high, and will make the silent oil crisis a very loud one.
Compete or concede
What we have seen
then is just because the rising price of oil does not seem too damaging
to us, it is already damaging many parts of the world where it is having
a similar effect to how the 1970s oil crises affected the world. There
are two obvious options left for everyone in the oil game, on whatever
level. Those options are that you compete or you concede.
We either compete
for the remaining oil resources and cling to the way of life we know
at whatever cost, or we concede, ease our way out of the game and make
the oil crisis an oil opportunity. That makes it sound all too easy
when in fact it presents human civilisation with the greatest decline
it will ever know. Both paths will be filled with incredible difficulties.
The oil crisis gets louder listen to it, talk about it, prepare
for it it is out there, the tide is rising and rushing towards
runs a UK Peak Oil awareness campaign at www.PowerSwitch.org.uk
He is helping organise a major 'Peak Oil' conference in London in October.