Peak Oil Wars

After reading an article that I published at Commodities Futures Trader for about the third time I began to wonder if the Washington neo-cons, lead by none other than President Bush, know more about peak oil than we have given them credit for.

If so it would at least partially explain their grim determination to hang on in Iraq and the Middle East no matter how much of a lost cause it may seem to most Americans.

After all, President Bush and his family are oil men. They have done well for themselves with their long term connections with the Saudi Royal family and the Texas oil fields. I’m confident that the Bush family does have good intel on oil industry conditions worldwide if not on weapons of mass destruction.

Then again, their intelligence on WMD’s may have been plenty good too. They may have known full well that Saddam was not a clear and present danger but used the misinformation as an excuse to start one of the first peak oil wars of the 21st century.

Peak oil is a concept that is easy to understand. There is only so much of the gooey black stuff in the ground. Once you have tapped into the most productive oil fields each one of them can produce oil only for so long. At some point production will began to fall as oil supplies for that field are depleted. The point at which production begins to fall is known as peak oil.

Peak oil doesn’t mean that the oil will stop flowing right away. It does mean that generally less oil will be pumped from the field each year as supplies continue to fall. Eventually as production continues to fall the field will not be an economical one to keep pumping.

Peak oil occurred in the US in 1970. Oil Production has been falling every since. Peak oil occurred in the mighty British North Sea field in 2005. It’s hard to know about Saudi Arabia. Some scientists believe peak oil has already occurred there. All agree that if it hasn’t already occurred it soon will.

What peak oil on a global basis means for a world so dependant on oil supplies for energy is frightening. If peak oil occurs globally before we have had time to find other ways to fully generate our energy needs the world’s economic activity could severely contract.

Oil prices would probably go to well over $100 a barrel. A world wide depression could occur that would last many years.

Nations that are energy deficient yet energy hogs, like the US, will be severely pressed to source all of their energy requirements at any price. Nations like Russia and Canada, which still have a surplus of energy resources, would become exceedingly wealthy as funds are transferred from the energy have nots to those nations lucky enough to produce more than they consume.

The standards of living of the energy dependent nations would fall as they are drained of financial resources to pay for imported oil. The coffers of surplus producing nations would swell to the overflowing as they sell their surplus oil and natural gas to the poor energy deficient nations. There would be a great and destabilizing transfer of wealth such as the world has never seen.

This process is probably already underway. Just look at how the Russians have come back from the dead over the last few years on the back of rising oil prices.

The tensions that will be created between have the oil and don’t have the oil nations will create highly dangerous situations. Almost certainly peak oil wars will begin as nations take a me first attitude. The present rising tensions between Russia and the US likely have been influenced by the Russians emerging as energy czars as the US pays through the nose to import oil from world markets.

Perhaps the peak oil wars have already started. President Bush and the neo-cons may be completely up to speed with the peak oil scenario. By invading Iraq they may have decided to keep the US going for at least a few more years to give it more time to learn to cope with a world short of oil. With its dependence on imported oil the US economy is especially vulnerable to any prolonged price shock or to a scarcity at any price.

Unfortunately for Bush, the neo-cons, and the US, the Iraq war has not exactly gone to plan. It seems that the Bush game plan has endangered oil supplies from the Middle East rather than secured then for the US. One of these days American Presidents will learn of the dangers of unintended consequences.

As severe as the consequences of peak oil may be it would not be surprising to have the governments of the world and big oil companies lie, lie, and lie some more about the near term outlook. You can imagine the panic in the developed world that an outright announcement of imminent permanent oil, gas, and energy shortages would cause.

If the scientists are right, peak oil on a global basis will occur within four years. Has President Bush already fired the first shot in the peak oil wars?

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