_ Dr. Jan Moldenhauer, Institute for State Policy. Steigra, 2015.*
Even in the early 21st century, crude oil has not lost its importance as the world’s leading energy. Oil wars (see Iraq War 2003) are still being waged to ensure access to black gold.
However, the availability of oil is not only an important factor in war, but – since the First World War – also in war, which can show even the most powerful armed forces the limits of military feasibility. In the Second World War, access to cheap oil expanded the Allies’ military scope for manoeuvre, which, at the time, controlled 86 percent of the world’s oil reserves, whereas the Third Reich suffered from a steadily increasing lack of fuel as the war progressed and was ultimately dependent on expensive coal liquefaction. That dramatic shortage of fuel proved to be the Achilles’ heel, as it significantly restricted the German generals’ scope for military action. Ultimately, this disadvantage could not be offset by a people that had been “brought into shape”. What can determine soldiers do when the heavy equipment of war breaks down and the supply lines collapse due to an acute lack of fuel? Access to cheap oil as a strategic resource thus became a (co)determining factor in the outcome of the war.
However, access to cheap oil is not only an essential factor in warfare. Oil is also the lubricant of the world economy. In this context, the effects of global conventional oil production (peak oil) reaching the limits of technical and quantitative feasibility are described below. Subsequently, the resulting limits of feasibility with regard to economic globalization are outlined. Finally, the associated expanding conservative feasibility scope with regard to the defence of one’s own is derived.
“In the course of the last 100 years, the world population has quadrupled, global economic output has increased twenty-fold and primary energy consumption has increased fourfold. A look at the corresponding function graphs instructs every neutral observer that there was no ‘development’ but an explosion – and therefore at falling debris is to be expected as the expansion pressure decreases. The apex has been reached.”
The term “peak oil” is defined as the period in which the global conventional oil production maximum is reached. From now on, the worldwide daily oil production can no longer be increased, so it stagnates and finally begins to decrease. Since 1980, the use of oil reserves already discovered has exceeded the reserves newly discovered by means of test drilling. Conventional oil production has now been stagnant since 2008. According to the International Energy Agency’s World Energy Outlook, any net increase in global oil production through 2035 will be based entirely on unconventional oil production. Scientific studies conclude that the peak of conventional global oil production has been reached.
The oil fields, which contain conventional oil that can be produced particularly cheaply, have now been largely exploited. The majority of those large oil fields that have formed the backbone of global oil production for decades have been in operation for 40 to 60 years. Their timely exhaustion and the resulting decline in the respective production volume are foreseeable. Continued exploitation of these large oil reservoirs through secondary (water injection) and tertiary (fracking) production, as well as the development of smaller and less profitable oil fields to meet increasing demand, is accompanied by increasing production costs and decreasing net energy recovery rates (energy return on energy invested).
In terms of energy history, mankind has always succeeded in making energy sources with higher energy densities usable when transitioning from an old to a new energy age. The main source of energy, wood or biomass, was partially substituted by coal, and the main source of energy, coal, by natural gas and, in particular, oil. An energy turnaround always led to the substitution of a lower-quality energy source in terms of energy density and usability by a higher-quality one, and thus to further technical progress and continued economic prosperity. However, the currently available substitutes in the area of mobility guarantee (unconventional oil, natural gas, biomass and coal liquefaction, electric and hydrogen mobility) are not higher-quality alternatives, but energy sources with lower energy density, significantly higher production costs and immature technologies. As a result, no energy transition has taken place in the transport sector to date. 95 percent of the global transport industry is still based on oil.
What follows from the development described above? The answer: increasing transport costs. The current moderate oil prices cannot hide this fact due to the temporary oversupply on the oil markets, which can be attributed to the following causes:
- a US fracking industry artificially inflated by lowering environmental standards, granting interest-free loans and the incentive of high oil prices;
- a price war by Saudi Arabia against the same fracking industry, which is now facing a wave of bankruptcies and is showing declining production volumes;
- a weakening global economy;
- a strong dollar.
The trained observer recognizes a classic “boom and bust” cycle in the oil price time series of past years, in the further course of which oil prices will rise again significantly in the foreseeable future.
We firmly believe that conventional oil production has reached the technological and quantitative limits of feasibility. Equal or even higher quality and cheaper substitutes for the transport industry are currently not available.
“Before its petroleum flood, capitalism was an economy-driven event: investments had to be financed from savings, which in turn could only be formed by renouncing consumption (whether from one’s own consumption renunciation or from that of other people who could then act as lenders). That was the › Max Weber’s ascetic’ capitalism – a new formation in many respects, but still deeply connected to the scarcity experiences of 12,000 years of human history.”
The globalization of trade is of course not a natural event, but politically desired. Without free trade agreements and low transport costs as well as transport cost subsidies amounting to 200 billion dollars per year worldwide, the global trade volume would be significantly lower and the increasing fragmentation of the production or value chain and its dislocation around the globe (vertical specialization) in this form would be absolutely impossible.
The fact that rising transport costs resulting from peak oil are threatening trade globalization can be easily demonstrated by the example of the period of rising oil prices between 1998 (12 US Dollars) and 2008 (147 US Dollars): Between 2003 and early 2007, oil prices rose due to the approaching peak oil from 30 to 100 dollars and became effective through the transport cost channel (peak oil ➔ rising oil prices ➔ rising fuel prices ➔ rising transport costs). This increased the daily fuel bill for an average-sized cargo ship from 9,500 to 32,000 US Dollars. Overall, fuel costs for merchant ships increased by 500 percent between 2002 and mid-2008.
In some industries, the aforementioned oil price increases were accompanied by significant regionalization effects. Take the steel industry as an example: During the first three quarters of 2008 – i.e., before the onset of the financial crisis in the fourth quarter – US steel imports from Italy fell by 29.7 percent and from China by 20.8 percent compared to the previous year, while US steel imports from neighbouring Canada (+21.3 percent) and Mexico (+6.8 percent) increased significantly. During the same period, US steel production increased by four percent. Econometric time series analyses show that there is a causal relationship between the regionalization of the steel industry and the rising oil price. Numerous other studies also show a deglobalization effect during the 2000s due to rising oil prices.
The oil price shock also produced a substitution effect to the detriment of air transport, which involves high transport costs, and in favour of comparatively inexpensive but slower sea transport. The high oil prices also led to a slowdown in global trade. The globalization of trade therefore reached the limits of feasibility.
Economic globalization does not only mean trade globalization, i.e. the expansion of worldwide trade flows, but also increasing global flows of people and money. While low transport costs favor the indiscriminate movement of the human factor of production around the world, high transport costs have the opposite effect. In addition, the economist Thomas Fricke argues that peak oil (partially) triggered the financial crisis in 2008. The possible causal chain: rising oil prices ➔ drastically rising US inflation ➔ major rate hikes by the Fed ➔ wave of bankruptcies among indebted homeowners as a result of rising variable interest rates ➔ bursting real estate bubble in the USA ➔ Lehman Brothers bankruptcy ➔ rescue packages from European countries ➔ increasing European government debt ➔ bankruptcy in Greece ➔ euro crisis.
“For the 60 years of the full flow of oil (from 1950) the core question of economy and life was no longer ‘Where does the energy come from?’, but its smooth reversal: ‘Where to put the energy?’ Man was created by a (productive) source of energy to a (consumptive) energy sink – a process that has not yet been properly appreciated anthropologically and psychologically, although its consequences have been clearly noticeable in psychosomatic practices and clinics for three decades.”
A 2010 study by the Bundeswehr takes up the above-described relationships and assesses peak oil as a systemic risk for globalization, and from there a final conservative perspective now makes sense:
Cheap energy is the prerequisite for innovation and progress. Fossil energy resources that can be developed cheaply (natural gas, coal, oil) were generally exploited first in the past decades in accordance with economic laws. Because of this, there is a tendency towards increasing energy costs over time in the absence of technological quantum leaps or increasing funding costs. Renewable energies will not be able to replace fossil fuels in the foreseeable future – this applies in particular to the transport sector.
In this context, peak oil could prove to be a brake on progress in the sense of deglobalization, which calls into question the liberal ideology of progress, consumption and growth. Is the liberal delusion of feasibility, i.e., the delusion that there is no limit to what is feasible, reaching its limits here?
According to this thesis, cheap oil and the associated economic globalization (ideology of the total global market) lead to excess (consumption and growth ideology), acceleration, dissolution of boundaries, displacement, individualization and loss of community (ideology of individualism) and loss of identity or loss of own.
Conversely, expensive oil and the resulting economic deglobalization favour the following developments: pressure to moderate, deceleration, limitation, localization and rediscovery of place, return of communities and the possibility of preserving identity or defending one’s own.
Cheap energy (seduces) leads to liberal mania for feasibility and results in the narrowing of the conservative scope for feasibility. Significantly more expensive energy counteracts the liberal mania for feasibility, which manifests itself in the liberal sub-ideologies (ideology of the total global market and individualism, ideology of progress, consumption, and growth), and leads to an expansion of the conservative scope for feasibility in terms of defending one’s own self. In this context, peak oil unfolds an – albeit indirect – identity-creating effect.
References
- Aleklett, K. et al.: The Peak of the Oil Age – Analyzing the world oil production Reference Scenario in World Energy Outlook 2008. Energy Policy Vol. 38 (2010), S. 1398–1414;
- Ganser, D.: Europa im Erdölrausch. Die Folgen einer gefährlichen Abhängigkeit, Zürich 32013;
- Gründinger, W.: Die Energiefalle. Rückblick auf das Erdölzeitalter, München 2006;
- Moldenhauer, J.: The Impact of Peak Oil on Globalisation – An Example of Steel Exports to the United States. Dissertation, Liverpool 2013;
- Yergin, D.: Der Preis. Die Jagd nach Öl, Geld und Macht, Frankfurt a.M.: Fischer 1991;
- Zentrum für Transformation der Bundeswehr – Dezernat Zukunftsanalyse: Peak Oil. Sicherheitspolitische Implikationen knapper Ressourcen, Strausberg 2010.
* Translated and republished with kind permission by the author from the original publication: Moldenhauer J. (2015). Peak Oil, Globalisierung und die Grenzen der Machbarkeit. Sezession Nr. 68. IfS. URL: https://sezession.de/uploads/Sez68-Moldenhauer.pdf