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Racing Against Time: Peak Oil = Peak Economy

Tuesday, October 5, 2010, 6:21 AM
//This post is a contribution to Honda’s “Racing Against Time” thought leadership series.  Chris Martenson was selected to provide a unique perspective on how we should approach the discussion of oil as a finite energy source.   During the first week of October 2010, five individuals provide their own thoughts on the subject. These independent contributors were not compensated for their participation and as such their views are their own and do not necessarily reflect those of Honda.  Details and links to what others are saying about “Racing Against Time” can be found at www.facebook.com/Honda. [1]// ------------------------------------------------------------------------------   Peak Oil will result in 'peak economy.'  Once it arrives, nothing will work quite the same way again. Let me explain. The concept of “Peak Oil” is simple enough:  Oil is a finite resource.  Someday, no matter how hard we try, we will hit a maximum rate of production.  From that time on, we will see less and less oil coming up out of the ground.  What Peak Oil [2] refers to, then, is not "running out" of oil, but the fact that we are going to hit peak production sooner or later.  All of the data suggests that "sooner" is a better candidate than "later." By itself, the concept of having to get by on just a little bit less oil each year seems to be manageable enough.  Perhaps we can develop more hybrid/electric cars, wind/solar farms, and other technologies that can help us use energy more efficiently.  I will applaud these technologies as they become more widely available, but basic math indicates that they cannot possibly bridge the energy gap being left by retreating oil supplies fast enough.  So then what? My particular concern, and the focus of my writing and speaking, is the role of energy in creating and supporting the economy upon which we all depend.  The short version of the story is this:  Our economy utterly depends on oil to function.  And for the first time ever, oil production is declining.  We are now racing against time. -------- MONEY & GROWTH ------------------------------------------------------ To explain why this is so important, we should begin with an understanding of how our monetary system operates.  Stay with me here; I’ll keep this quick.  The critical fact is this:  All money is loaned into existence.  All of it.  Everywhere.  Every last dollar (or yen or euro or…).  No matter what color your money is, or what colorful pictures it has on it, in order to belong to the international community, the story is the same.  Your banking system must create money and debt at the same time.  Whatever we might think of such a system, it is what we have, and understanding its design will help us assess how the future may unfold. All you really need to know about debt-based money is this:  It demands growth. With constant economic growth, our money system is relatively happy; without growth, it becomes utterly despondent.  Think of your own finances.  The more your income grows, the easier it is to meet your debt payments and afford the things that give you joy in life.  If your income takes a hit, you still need to make your debt payments, and if those are too large, it’s ramen noodles for dinner. Without constant economic growth, preferably in the range of 3% or better, the debts of countries like the US begin to default, new loans are withheld (limiting future growth), the entire financial system suffers enormously (even threatening to collapse), and gobs of wealth are destroyed.  Sound unlikely?  It shouldn’t, as this is what most financial professionals call “2009." That was the year in which global economic growth slipped by a mere -2%, yet that was sufficient to make it feel as though the economic cart had lost a wheel, toppled into a ditch, and exploded in flames, before the ditch itself was lost over a cliff in a landslide of mud and debris.  Okay, perhaps I exaggerate slightly, but the point that I’m trying to make is this:  Had the world economy grown by 2% instead, it could have avoided suffering through a systemic banking crisis and would not have had to spend tens of trillions of dollars propping up a shaky edifice of 'too much debt.' That’s the difference between growth and shrinkage in our world economy.  Night and day.  Life and death.  If this strikes you as a rather fragile and unsustainable way to construct an economy, then you are not alone.  After all, how can anything grow forever? The key takeaway here is this:  Our economy must grow in order to function. -------- OIL & THE ECONOMY --------------------------------------------------- Very few people grasp just how much our economy really depends on the "master resource," energy.  Of all sources of energy, the undisputed king is petroleum.  Besides making a lot of very useful things from oil – plastics, fertilizers, pharmaceuticals, and so forth – oil supplies nearly all of the energy that moves things around (95% of it, to be exact).  Try to imagine our current globalized economy, with its long supply chains (3,000 miles for salads and 30,000 for computers), functioning without oil. So our economy must grow.  To keep thing working smoothly, we need to grow or build and sell more salads and computers each year - which means, unequivocally, that we need more oil.  Every single country that wants to enjoy a better standard of living requires oil.  And although China and India are grabbing the headlines, oil consumption is rising in nearly every country.  This everyone can see.  But what few really understand is the severe risk that our growth-based economy cannot grow without increasing oil supplies, and, most critically, that our financial system itself may simply cease to function well (or at all) without that growth.  That is why Peak Oil is such a threat to our standard of living. For more on these concepts, I recommend watching chapter 17b Energy Budgeting [3] and 17c Energy and the Economy [4] from my free, on-line tutorial /The Crash Course/ [5]/,/ in which I spend more time developing this line of thinking.  Right now, let's move on in agreement that economic growth requires expanding oil supplies. -------- TIME ---------------------------------------------------------------- Peak Oil used to be derided as crackpot theory constrained to a few retired and marginalized geologists.  But not anymore.  Recently, numerous institutions and government bodies have disturbingly concluded that Peak Oil, or at least the outstripping of supply by demand, may occur as early as 2012, and possibly as late as 2020, but with an emerging consensus of around 2014-2015.  No matter which estimate we believe, they are naught but the blink of an eye given the enormous changes (and investments!) that we will have to undertake if we want to smooth out the transition process. We are truly racing against time. In every technological solution seeking to offer the promise that we can just continue to grow as we have in the past without making any changes to our lifestyles or expectations, I find a chasm between the hopes and dreams of the proponents and the realities of the time that it would take to build these solutions, the scale of the projects involved, and the costs associated with them. Time, scale and cost; these are very real issues that must be addressed if a proposed solution seeks to be credible. For example, I frequently meet people who have pinned their hopes on electric cars.  While I have high hopes, too, I note that there are far too few electric cars on the roads today to offer any meaningful contribution to our transport needs should Peak Oil arrive in only 3-5 years' time.  Even if we were to build 50,000,000 electric cars per year starting right now, it would be ten years before half the cars in the world had been replaced.  And this does not even factor in the implied massive upgrades to the electrical grid and power stations, or the lithium needed for car batteries. -------- THE FUTURE & WHAT YOU CAN DO ---------------------------------------- Make no mistake; given the above, there is another energy shock in our future.  It will be larger, longer-lasting, and more profound than the last one.  I see no way of avoiding it at this point. The sooner we, our companies, and our countries begin the process of adapting to a world of less (and vastly more expensive) oil, the better.  It’s not a matter of conservation for its own sake; it’s a matter of conserving because it is the prudent thing to do.  Taking steps now will allow us to mitigate the risks that we face and take a gentler path to the future than we otherwise would.  And the more time we save, the more time we give ourselves to make mistakes and seek intelligent solutions. I have created a guide [6] to help you get started on your way to preparing for a life of increasing energy scarcity.  It has been developed specifically to address the question most people ask after learning about the Peak Oil threat: “What Should I Do? [7]”  There is also a wealth of information and advice in the community forums [8] at PeakProsperity.com.  Whether or not you use these particular resources, I urge you to begin taking action to develop your personal resiliency.  We still have time – let's make good use of it. And as unlikely as it may sound, there are many things to be grateful for in this story. Our first opportunity is to begin to better appreciate what we have.  I am grateful for the lifestyle that I enjoy right now, for airplane travel, 24/7 electricity, the Internet.  All of these are fantastic luxuries unimaginable by even my own grandmother as a child.  Who knows what my own grandchildren (yet unborn) will experience? We have the opportunity here to reexamine the way in which we live our lives, to consider the types of work that we will do and how we will value that work, and to potentially fashion lives that have a ‘lower’ standard of living (as measured in excess 'stuff') but a far higher quality of life.  My own life is living proof that this is indeed possible. The most important asset you have is time.  /Use it wisely/. ------------------------------------------------------------------------------   /Chris Martenson runs a financially-oriented website and subscription newsletter service that analyzes macro trends in the economy, energy, and the environment, located at http://www.peakprosperity.com [9]. His organization provides exclusive consulting services for a limited number of companies and private individuals. A more detailed version of his views are contained within the enormously popular and free on-line video series called The Crash Course, found at http://www.peakprosperity.com/crashcourse [10]./ ------------------------------------------------------------------------------   /*Note to my readers:*/  I was */very/* impressed with the video produced by Honda to introduce this "Racing Against Time" series.  You can find it here: http://dreams.honda.com/#/video_ra [11]  (if you '/skip to the main feature/' you'll get there slightly quicker).  I am extremely impressed by how they have combined corporate philosophy, strengths, and vision into a powerful stream of words and images, and I have not recently seen better.  My wife almost cried; I gave a fist pump.  Kudos to everyone involved for striking such an exceptional balance between vision and urgency.   [1] http://www.facebook.com/Honda [2] http://www.peakprosperity.com/crashcourse/chapter-17a-peak-oil [3] http://www.peakprosperity.com/crashcourse/chapter-17b-energy-budgeting [4] http://www.peakprosperity.com/crashcourse/chapter-17c-energy-and-economy [5] http://www.peakprosperity.com/crashcourse [6] http://www.peakprosperity.com/page/what-should-i-do [7] http://www.peakprosperity.com/page/what-should-i-do [8] http://www.peakprosperity.com/forum [9] http://www.peakprosperity.com [10] http://www.peakprosperity.com/crashcourse [11] http://dreams.honda.com/#/video_ra
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14 Comments

britinbe's picture
britinbe
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Posts: 381
Re: Racing Against Time: Peak Oil = Peak Economy

Another great read.

M

TtotheA's picture
TtotheA
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Re: Racing Against Time: Peak Oil = Peak Economy

Honda needs to cancel their fuel cell projects. As CM (and others) has shown us, creating hydrogen to run cars makes no sense.

SingleSpeak's picture
SingleSpeak
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Re: Racing Against Time: Peak Oil = Peak Economy

Honda gets it!

Let's hope it's contagious and the government figures it out before too much more time passes. The current approach of writing 2,000 page bills declaring things illegal, or mandated, or price-fixed, etc. won't work this time.

Talking Head: "Good morning everyone. I'm pleased to announce the President has signed into law a new bill making Peak Oil illegal. We aren't sure what is in the bill because it was just submitted and passed through both houses of the Congress while nearly everyone was on a lunch break. We'll find out what is in it later, as usual. Another item just in, for some unexplained reason gold is up another 25% this afternoon."

mobius's picture
mobius
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Posts: 160
Re: Racing Against Time: Peak Oil = Peak Economy

Chris,

You should be so proud of this achievement.  And I'm coming to grips with "sharing" you with the Mainstream, but alas, the message is the message!

Kudos,

Joanne.

Matt Holbert's picture
Matt Holbert
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Posts: 82
Re: Racing Against Time: Peak Oil = Peak Economy

I watched the Honda "Mobility" film and must say that it comes across as over-the-top propaganda. Read the first two chapters of Charles Hugh Smith's "Survival+" before you watch the film.  I'm fairly certain that none of the participants in the film have a firm grasp of the Second Law of Thermodynamics. 

ichor's picture
ichor
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Re: Racing Against Time: Peak Oil = Peak Economy

Its a little odd that Honda is using the blogs of peak oilers to promote their team spirit, its like they are trying to say "we get it - the world is running out of oil, so we will put together a great team of engineers, designers and marketing people from around the world and build a car that runs on err... something"

There is no silver bullet, and no matter how big the challenge to build a car that runs on pure sunshine, when the oil run out people around the world will start to starve, which is not a good market to be selling car in.

If honda designers really want to make a difference to the future they should be looking at the vast need for appropriate technologies, small simple devices that enable people to live simply. This stuff is far more important than giving some rich first world person a car that doesn't use oil just to ease their guilty conscience.

land2341's picture
land2341
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Re: Racing Against Time: Peak Oil = Peak Economy

I understand Chris' reaction.  When you have spent a decade trying to get people to acknowledge the elephant in the room,  seeing a global corporation putting out a message (propaganda or not, its all propaganda!); is an affirmation that finally some one else really truly sees the elephant.

Having individuals all over listening is a wonderful thing,  but until corporations began to address this instead of denying it we were going no where fast.  Now, it is out in the open posed as a problem to be solved,  not a crisis to be avoided.

To me, this is progress.

tahoevalleylines's picture
tahoevalleylines
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Re: Racing Against Time: Peak Oil = Peak Economy

Here comes grampa and his magic carpet made of steel...

SunTzu, master strategist and mentor to the Chinese planning community, mentions ways & means for weaker country to counter, and eventually surpass stronger, more wealthy adversary.    The master says to entice the stronger one to buy at a lesser price, manufactured articles of equal or better quality.   Establish manufactury ability to a degree the stronger country soon turns over the business & technology and jobs to the less formidable player (what's the harm in that?)...  

In the case of today's China, the aforementioned is fait accompli.   China has determined to secure by contract or actual participation in development, large oil fields and is continuing to do so as they are discovered.   China has a monopoly on most of the rare earth resources needed to proceed into the electric car era as primary player.   The material is offered to others on condition the manufacturing done with the resources is accomplished in new Chinese factories.   China cares less about cars than staying current with cutting edge factory design.    You know, fish vs. fishing pole...  If 911DAY was an American tragedy, it was an energy/transport wake up call for China.

Interesting so far, but wait!   China is also engaged in the greatest railway expansion in history.   Is that what we are missing here in the States?    We've lost the jobs, depleted or lost control of fuel and raw materials, let the transport infrastructure degrade.  What else can we do do next?   Maybe try Parallel Bar Therapy?   As in, get to back to rail based transport, "Second Dimension Surface Transport Logistics Platform".    Honda, can your facilities build rail vehicles?    No need to answer right away, let's let the situation cure a bit longer...

Railway signals shall include events leading to "Federal Executive Emergency Orders" for motor fuel allocation.  This can be sooner in Middle East meltdown, spelled I-R-A-N or just  plain supply being overtaken with the help of the "Asian Tigers", India and (that pesky) China.    Or later, if we are fortunate enough to escape military actions leading to supply disruption, demand moderates, US Dollar maintains enough value to sustain ever more painful foreign exchange imbalance.    Some set of choices...

For information of those seeking actionables, consider reformed US Army/Guard Railroad Operating & Maintenance Battalions.   These units, state by state, will prioritize strategically, order of dormant branch rail line rebuild to handle agricutural traffic affected by trucking fuel shortage.    Rail lines would be turned over to private operation as the upgrades are completed.  Rail mains will have many container and trailer handling facilities added enroute, to lessen concentration of  rail/truck interface at terminal railyard complexes.   

Early on, US will need to hold export of steel scrap, providing heavy melt material for expanded rail rolling mills, track and rollinfgstock hardware.    Honda, other car manufacturers will become railroad suppliers at their own initiative, or wait for Federal takeover.    As seen in the US Constitution Article one section 8, "Powers of Congress", the creation of Post Roads was a high priority.    Later, on July 10, 1838, the Congress codified All Railroads as "Post Roads"; Guarantors of Societal & Commercial Cohesion".  

People and organizations public & private with initiative, can familiarize themselves with the rail footprint in their respective areas of influence.  Look in vintage 1920-1960 "Official Guide" of the railways, or by reference to the US Rail Map Atlas Volumes from spv.co.uk., the rail footprint past & present should be re-learned for this planning and execution.    Christopher C. Swan 's "Electric Water" (New Society Press,2007)  and companion website "Suntrain Transportation Corporation" are useful compendiums of renewables application to water supply and mobility.    The American Short LIne RailRoad Association (ASLRRA) has hundreds of member rail operators, and these smaller companies are suited to the local rail re-connect necessary in the Oil Interregnum.

It will be interesting to see which of the World's major auto manufacturing companies wakes up to the need to move beyond the idea of a private vehicle for everyone on earth at puberty.   China plays with cars but already has made long term commitment to comprehensive & robust national rail matrix.    As China milks other countries for the electric car plants, they will reveal railway priorities with time.

As an addendum, let's also mention a couple of ancillary thoughts:   Water supply on the scale to recharge aquifers is needed; see "NAWAPA", circa 1965 Water project from Parsons Engineering.    Actual disengagement from  Middle East supply would get  America out of the "Hooks In The Jaws" syndrome posed by oil requirement in transport.     -There shall be blood-     Finally, Richard Clarke's book "Cyberwarfare"- to round out planning justification for sustainable domestic economic building blocks, including rehab of  local connectivity rail links. 

 

 

Doug's picture
Doug
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Posts: 3114
Re: Racing Against Time: Peak Oil = Peak Economy

tahoevalleylines

Welcome to the forum.  I like the way you think.  Fast efficient rail transport is indeed the wave of the future.  However, those in the current paradigm will be slow to respond until they reach a point where they can no longer drive a personal auto.  Unfortunately, what you propose takes lots of advance R&D and, oh yeh, energy.

Doug

robie robinson's picture
robie robinson
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Re: Racing Against Time: Peak Oil = Peak Economy

FWIW,

I ride a Honda NHX 110 to work several days a week. (i only see pts. 3 days/week) its fun and i average 80-100mpg.

robie

AinSophAur's picture
AinSophAur
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Posts: 18
Re: Racing Against Time: Peak Oil = Peak Economy

Peak oil = Peak Economy = Peak Everything (incl. Peak Science).

 

http://reason.com/archives/2010/04/27/peak-everything 

 

http://richardheinberg.com/bookshelf/peak-everything 

danny117's picture
danny117
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Posts: 1
Re: Racing Against Time: Peak Oil = Peak Economy

This isn't for everyone.  I took a course to learn to ride a motocycle.  I now have a small motorcycle that gets 42 in the city.

Damnthematrix's picture
Damnthematrix
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How America's Decline Is Linked to Oil

<http://www.alternet.org/environment/152423/how_america>

ENVIRONMENT  


How America's Decline Is Linked to Oil

America's rise to supremacy was fueled by control over the world's oil supply. Now, the decline of the U.S. coincides with the decline of oil as a major energy source.
 

America and Oil.  It’s like bacon and eggs, Batman and Robin.  As the old song lyric went, you can’t have one without the other.  Once upon a time, it was also a surefire formula for national greatness and global preeminence.  Now, it’s a guarantee of a trip to hell in a hand basket.  The Chinese know it.  Does Washington?

America’s rise to economic and military supremacy was fueled in no small measure by its control over the world’s supply of oil.  Oil powered the country’s first giant corporations, ensured success in World War II, and underlay the great economic boom of the postwar period.  Even in an era of nuclear weapons, it was the global deployment of oil-powered ships, helicopters, planes, tanks, and missiles that sustained America’s superpower status during and after the Cold War.  It should come as no surprise, then, that the country’s current economic and military decline coincides with the relative decline of oil as a major source of energy.

If you want proof of that economic decline, just check out the way America's share of the world's gross domestic product has been steadily dropping, while its once-powerhouse economy now appears incapable of generating forward momentum.  In its place, robust upstarts like China and India are posting annual growth rates of 8% to 10%.  When combined with the growing technological prowess of those countries, the present figures are surely just precursors to a continuing erosion of America’s global economic clout.

Militarily, the picture appears remarkably similar.  Yes, a crack team of SEAL commandos did kill Osama bin Laden, but that single operation -- greeted in the United States with a jubilation more appropriate to the ending of a major war -- hardly made up for the military’s lackluster performance in two recent wars against ragtag insurgencies in Iraq and Afghanistan.  If anything, almost a decade after the Taliban was overthrown, it has experienced a remarkable resurgence even facing the full might of the U.S., while the assorted insurgent forces in Iraq appear to be holding their own.  Meanwhile, Iran -- that bête noire of American power in the Middle East -- seem as powerful as ever.  Al Qaeda may be on the run, but as recent developments in Egypt, Libya, Syria, Yemen, and unstable Pakistan suggest, the United States wields far less clout and influence in the region now than it did before it invaded Iraq in 2003.

If American power is in decline, so is the relative status of oil in the global energy equation.  In the 2000 edition of its International Energy Outlook, the Energy Information Administration (EIA) of the U.S. Department of Energy confidently foresaw ever-expanding oil production in Africa, Alaska, the Persian Gulf area, and the Gulf of Mexico, among other areas.  It predicted, in fact, that world oil output would reach 97 million barrels per day in 2010 and a staggering 115 million barrels in 2020.  EIA number-crunchers concluded as well that oil would long retain its position as the world’s leading source of energy.  Its 38% share of the global energy supply, they said, would remain unchanged.

What a difference a decade makes. By 2010, a new understanding about the natural limits of oil production had sunk in at the EIA and its experts were predicting a disappointingly modest petroleum future.  In that year, world oil output had reached just 82 million barrels per day, a stunning 15 million less than expected.  Moreover, in the 2010 edition of its International Energy Outlook, the EIA was now projecting 2020 output at 85 million barrels per day, hardly more than the 2010 level and 30 million barrels below its projections of just a decade earlier, which were relegated to the dustbin of history.  (Such projections, by the way, are for conventional, liquid petroleum and exclude “tough” and “dirty” sources that imply energy desperation -- like Canadian tar sands, shale oil, and other “unconventional” fuels.)

The most recent EIA projections also show oil’s share of the world total energy supply -- far from remaining constant at 38% -- had already dropped to 35% in 2010 and was projected to continue declining to 32% in 2020 and 30% in 2035.  In its place, natural gas and renewable sources of energy are expected to assume ever more prominent roles.

So here’s the question all of us should consider, in part because until now no one has: Are the decline of the United States and the decline of oil connected?  Careful analysis suggests that there are good reasons to believe they are. 

From Standard Oil to the Carter Doctrine

More than 100 years ago, America’s first great economic expansion abroad was spearheaded by its giant oil companies, notably John D. Rockefeller’s Standard Oil Company -- a saga told with great panache in Daniel Yergin’s classic book The Prize.  These companies established powerful beachheads in Mexico and Venezuela, and later in parts of Asia, North Africa, and of course the Middle East. As they became ever more dependent on the extraction of oil in distant lands, American foreign policy began to be reorganized around acquiring and protecting U.S. oil concessions in major producing areas. 

With World War II and the Cold War, oil and U.S. national security became thoroughly intertwined.  After all, the United States had prevailed over the Axis powers in significant part because it possessed vast reserves of domestic petroleum while Germany and Japan lacked them, depriving their forces of vital fuel supplies in the final years of the war.  As it happened, though, the United States was using up its domestic reserves so rapidly that, even before World War II was over, Washington turned its attention to finding new overseas sources of crude that could be brought under American control.  As a result, Saudi Arabia, Kuwait, and a host of other Middle Eastern producers would become key U.S. oil suppliers under American military protection.

There can be little question that, for a time, American domination of world oil production would prove a potent source of economic and military power.  After World War II, an abundance of cheap U.S. oil spurred the development of vast new industries, including civilian air travel, highway construction, a flood of suburban housing and commerce, mechanized agriculture, and plastics.

Abundant oil also underlay the global expansion of the country’s military power, as the Pentagon garrisoned the world while becoming one of the planet’s great oil guzzlers.  Its global dominion came to rest on an ever-expanding array of oil-powered ships, planes, tanks, and missiles.  As long as the Middle East -- and especially Saudi Arabia -- served essentially as an American gas station and oil remained a cheap commodity, all this was relatively painless.

In addition, thanks to its control of Middle Eastern oil, Washington had its hand on the economic jugular of Europe and Japan, both of which remain highly dependent on imports from the region.  Not surprisingly, then, one president after another insisted Washington would not permit any rival to challenge American control of that oil jugular -- a principle enshrined in the Carter Doctrine of January 1980, which stated that the United States would go to war if any hostile power threatened the flow of Persian Gulf oil.

The use of military force, in accordance with that doctrine, has been a staple of American foreign policy since 1987, when President Ronald Reagan first applied the “principle” by authorizing U.S. warships to escort Kuwaiti tankers during the Iran-Iraq War.  George H. W. Bush invoked the same principle when he authorized American military intervention during the first Gulf War of 1990-1991, as did Bill Clinton when he ordered missile attacks on Iraq in the late 1990s and George W. Bush when he launched the invasion of Iraq in 2003.

At that moment, the United States and oil seemed at the pinnacle of their power.  As the victor in the Cold War and then the first Gulf War, the American military was ranked supreme, with no conceivable challenger on the horizon.  And nowhere were there more fervent believers in “unilateralist” America’s ability to “shock and awe” the planet than in Washington.  The nation’s economy still appeared relatively robust as a major housing bubble was just beginning to form.  China’s economy was then a paltry 15% as big as ours.  Only seven years later, it would be approximately 40% as large.  By invading Iraq, Secretary of Defense Donald Rumsfeld planned to demonstrate the crushing superiority of America’s new high-tech weaponry, while setting the stage for further military exploits in the region, including a possible attack on Iran.  (A neocon quip caught the mood of the moment: “Everyone wants to go to Baghdad.  Real men want to go to Tehran.”)

The future of oil seemed no less robust in 2003: demand was brisk, crude prices ranged from about $25 to $30 per barrel, and the concept of “peak oil” -- the notion that planetary supplies were more limited than imagined, that in the near future production would reach its peak and subsequently contract -- was still considered laughable by most industry experts.  By invading Iraq and setting up permanent military bases at the very heart of the global oil heartlands, the White House expected to ensure continued control over the flow of Persian Gulf oil and gain access to Iraq’s voluminous reserves, the largest in the world after those of Saudi Arabia and Iran.

From an imperial point of view, it was a beautiful dream from which Americans were destined to awaken abruptly.  As a start, it quickly became apparent that American technological prowess was no panacea for urban guerrilla warfare, and so a vast occupation army was soon needed to “pacify” Iraq -- and then pacify it again, and again, and again.  A similar dilemma arose in Afghanistan, where a tribal-based religious insurgency proved remarkably immune to superior American firepower.  To sustain hundreds of thousands of American soldiers in those distant, often inaccessible areas, the Department of Defense became the world’s single biggest consumer of oil, burning more on a daily basis than the entire nation of Sweden -- this, at a time when the price of crude rose to $50, then $80, and finally soared over the $100 mark.  Procuring and delivering ever-increasing amounts of gasoline, diesel, and jet fuel to American forces in Iraq and Afghanistan may not be the principal reason for the wars’ spiraling costs, but it certainly ranks among the major causes.  (Just the price of providing air conditioning to American troops in those two countries is now estimated at approximately $20 billion a year.)

With oil likely to prove increasingly scarce and costly, the Department of Defense is being forced to reexamine its fundamental operating principles when it comes to energy.  Secretary of Defense Rumsfeld’s notion that troops could be replaced by growing numbers of oil-powered super-weapons no longer appears viable, even for a power already garrisoning much of the planet for which “unending” war has become the new norm.

Yes, the Pentagon is looking into the use of biofuels, solar arrays, and other green alternatives to petroleum to power its planes and tanks, but any such future still seems an almost inconceivably long way off.  And yet the thought of more wars involving the commitment of vast numbers of ground troops to protracted counterinsurgency operations in distant parts of the Greater Middle East at $400 or more for every gallon of gas used appears increasingly unpalatable for the globe’s former “sole superpower.”  (Hence, the sudden burst of enthusiasm over drone wars.)  Seen from this perspective, the decline of America and the decline of oil appear closely connected indeed.

Don’t Bet on Washington

And this is hardly the only apparent connection.  Because the American economy is so closely tied to oil, it is especially vulnerable to oil’s growing scarcity, price volatility, and the relative paucity of its suppliers.  Consider this: at present, the United States obtains about 40% of its total energy supply from oil, far more than any other major economic power.  This means that when prices rise or oil supplies are disrupted for any reason -- hurricanes in the Gulf of Mexico, war in the Middle East, environmental disasters of any sort -- the economy is at particular risk. While a burst housing bubble and financial shenanigans lay behind the Great Recession that began in 2008, it’s worth remembering that it also coincided with the beginning of a stratospheric rise in oil prices.  As anyone who has pulled into a gas station knows, at an average price of nearly $3.70 a gallon for regular gas, the staying power of high-priced oil has crippled what, until recently, was being called a “weak recovery.”

Despite the great debt debate in Washington, oil is a factor seldom mentioned when American indebtedness comes up.  And yet the United States imports 50% to 60% of its oil supply, and with prices averaging at least $80 to $90 per barrel, we’re sending approximately $1 billion every day to foreign oil providers.  These payments constitute the single biggest contribution to the country’s balance-of-payments deficit and so is a major source of the nation’s economic weakness.

Consider for comparison our leading economic rival: China.  That country relies on oil for only about 20% of its total energy supply, about half as much as we do.  Instead, the Chinese have turned to coal, which they possess in great abundance and can produce at a relatively low cost.  (China, of course, pays a heavy environmental price for its coal dependency.)  The Chinese do import some petroleum, but considerably less than the U.S., so their import expenses are considerably smaller.  Nor do its oil-import costs have the same enfeebling effect, since China enjoys a positive balance of trade (in part, at America’s expense).  As a result, when oil prices soared to record heights in 2008 and again in 2011, Beijing experienced none of the trauma felt in Washington.

No doubt many factors explain the startling rise of the Chinese economy, including lower costs of production and weaker environmental regulations.  It is hard, however, to avoid the conclusion that our greater reliance on oil as it begins its decline has played a significant role in the changing balance of economic power between the two countries.

All this leads to a critical question:  How should America respond to these developments in the years ahead?

As a start, there can be no question that the United States needs to move quickly to reduce its reliance on oil and increase the availability of other energy sources, especially renewable ones that pose no threat to the environment.  This is not merely a matter of reducing our reliance on imported oil, as some have suggested.  As long as oil remains our preeminent source of energy, we will be painfully vulnerable to the vicissitudes of the global oil market, wherever problems may arise.  Only by embracing forms of energy immune to international disruption and capable of promoting investment at home can the foundations be laid for future economic progress.  Of course, this is easy enough to write, but with Washington in the grip of near-total political paralysis, it appears that continuing American decline, possibly of a precipitous sort, could be in the cards.

And don’t think that China will get away scot-free either.  If it doesn’t quickly embrace the new energy technologies, the environmental costs of its excessive reliance on coal will, sooner or later, cripple its development as well.  Unlike Washington, however, the Chinese leadership not only recognizes this, but is acting on it by making colossal investments in green energy technologies.  If China succeeds in dominating this field -- as has already begun to happen -- it could leave the United States in the dust when it comes to economic growth.  Ditching oil for the new energy technologies should be America’s top economic priority, but if you’re in a betting mood, you probably shouldn’t put your money on Washington.

Michael T. Klare is a professor of peace and world security studies at Hampshire College in Amherst, Mass., and the author of Rising Powers, Shrinking Planet. A documentary movie version of his previous book, Blood and Oil, is available from the Media Education Foundation.
SPAM_anelinamartin's picture
SPAM_anelinamartin
Status: Member (Offline)
Joined: May 28 2013
Posts: 1
Reall money is the assets we

Reall money is the assets we have. I am completely agree with you as with the passage of time energy needs are gone higher and higher in this case the countery have more resources for energy will have good economy time to transfer things from petrol to electric and on resources. As motorcycle can be shifted to electronic motorcycles as per the cars. for example if we have buying  motorcycle gloves in low price and knows that in future its will be expensive so we will try to stock it same with the oil.  

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