SPEAKING
FREELY The silent oil
crisis By James Howard
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
Adjusted to
modern-day prices, the historical record price for
oil was US$80 as a result of the second 1970s oil
crisis - a crisis brought about by political
circumstances, not geological realities. Last
month, the price for a barrel of oil passed $68,
just $12 from that high. Lessons from history
suggest that high oil prices mean bad news for the
economy, 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 the 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 isn't that bad.
We can still get all the food we want from the
other side of the world, flights are still
historically cheap, it isn't 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% 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 every $10
increase in the price of oil shaves roughly 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 2-3% 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 passed the global
peak in the rate of oil production. It doesn't
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 Great Decline" 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.
Eritrea: The 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 Eritrea's 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. 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 World's 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 the
country as it could give it the energy to fuel
farm machinery, irrigate land, transport crops and
make it self-sufficient in feeding its population.
The oil game and any hope for the kind of
prosperity seen in the West is effectively over
for Eritrea. With Hubbert's 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 can't get the oil without being in the
game.
Indonesia feels the
pinch Indonesia is another country that is
beginning to feel the pressure (again) of rising
oil prices. Once a net exporter of oil, this OPEC
member is an example of a more industrialized
country now struggling, not just economically, but
socially and politically. Fuel is subsidized 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 even further, experts
predict the economy will suffer. As the CIA
Factbook 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 it
removes subsidies, there will be civil unrest, and
if it doesn't, the economy suffers. However, it
will be familiar with recent history. In May 1998,
during a period of severe economic problems and
fears of food 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 Suharto resigning. It is
thus no shock to find that Indonesia is listed in
the US Department of Energy "Oil Hot Spots". The
extra profits that can be made from its
4-billion-plus barrel oil reserves as oil prices
increase might ameliorate the situation to an
extent, but there is no doubting the damage the
oil crisis brings to Indonesia.
So does
Philippines The oil crisis is getting
particularly acute in the Philippines. Already,
President Macapagal-Arroyo is talking of rationing
oil if prices don't fall and conservation efforts
are 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 last month.
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 colored by neon lights after 9pm; and night
golfing lovers have had 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 the 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. In
April, the IEA (International Energy Agency)
launched a book called "Saving Oil in a Hurry"
which is described as 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 from the world and where the
daily food rations are just 250 grams. These
meager rations are the simple sign of a country
unable to feed itself due to a lack of fertilizer
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
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
mechanized, 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 headlined "Glimpses of a hermit nation" also
paints a dire picture of a country deprived of
energy, although North Korea's problems also come
from choosing not to trade internationally, and
from an unwillingness to reform its
state-dominated Leninist planned economic model, a
model which has consistently failed everywhere in
the world it was tried.
The Cuban
crisis 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
Florida's shores. Billions of dollars are said to
be needed for power plants and oil to alleviate
Cuba's 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
industrialize 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
world's 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 highlands become
lowlands.
Oil crisis in the
West The signs of an oil crisis are already
here in the UK, in Europe and also in the US, even
if it is still too inaudible to be heard as a
serious warning. However, France's Prime Minister
Dominique de Villepin is already giving that very
warning. Recently he told a news conference, "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. 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 to wholesalers...
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 to 150 pounds per ton, haulage
rates were a minor issue. However, with grain now
selling for little more than 80 per ton, the slice
carved off by transport charges bites hard. The
added factor in the farming equation is that the
price of fertilizer 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 all right. We must take
warnings 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 be us.
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 2 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 5,000
pounds of personal debt, and is economically
dependent on unsustainable levels of housing
prices.
And the oil crisis has many stark
implications other than simply economic or
agricultural ones. On the global stage, Iran, a
country that may have 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 an effect similar to the 1970s oil
crisis. There are two obvious options left for
everyone in the oil game. 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
civilization 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 toward us.
James Howard
runs a UK peak oil awareness campaign at
www.PowerSwitch.org.uk. He is now helping organize
a major peak oil conference in London in October.
This piece was originally published in Countercurrents.
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
