“1) Supply Availability: Fossil fuel is not permanent panacea for our energy needs and it cannot be replenished. Various experts claim oil had “peaked” after the year 2000, and this contention is consistent with the current trajectory of oil prices. Royal Dutch Shell alone was forced to cut its reserve estimates five times in 2004 [1]. Major oil firms are desperately trying to boost flagging oil and gas production capacities and their quandary is exemplified by an over-reliance on moribund fields worldwide, a prominent one being the Ghawar wells in Saudi Arabia.

Oil is now being extracted from deeper sources through more expensive processes i.e. water injection. The price of oil will remain high.

Peak Oil is also called “Hubbert’s Peak,” named after Shell geologist Dr Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970 and that global production would peak in 1995. This would have transpired had the oil shocks of the 70s not delayed the peak for about 10-15 years.

2) Supply Stretch: Oil supply is so stretched that a concerted sabotage of two major pipelines in Russia or Saudi Arabia can precipitate pandemonium in the global economy. Hurricane Katrina, which, recently struck the oil producing Gulf Coast off the United States ratcheted oil to a record $70 per barrel. Major oil producing regions – Middle East, Central Asia, Russia and Venezuela – are bedeviled by terrorism and political volatility. Where stability exists, oil reserves are on a steep decline i.e. North America and the North Sea.

3) Environmental Factor: More hurricanes will ensue over the next few years in the Gulf Coast where most of the United States’ oil rigs and refineries are located. The “Atlantic multi-decadal mode” – where the “Atlantic Ocean and atmospheric conditions conspire” every “20 to 40 years” to “produce just the right conditions to cause increased storm and hurricane activity”[2]- all point to a fragile energy climate ahead. This is a factor omitted by popular literature on the looming energy crisis.

4) Global Financial Crisis: The euro-zone countries hold over $200 billion in US securities while Asia holds $1 trillion or more. This is enough to sink the US economy, though foreign parties are well aware of the dangers of redeeming these securities too soon. US domestic and foreign deficits have reached historic proportions[3]. In a classic Catch-22 situation, US monopoly on oil is being countered by a foreign hoard of US securities. A global hedge fund and banking crisis is looming as well. Banks had “created capital during the cheap oil period by lending more than they had on deposit, being confident that Tomorrow’s Expansion, fueled by cheap oil-based energy, was adequate collateral for Today’s Debt. The decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges.” (Campbell)

5) Soaring Prices: Goldman Sachs, among other reputed financial establishments, have already alerted markets of a possible “superspike” of US$105 per barrel. More recent projections place it even higher. In June 2005, despite repeated market assurances, OPEC raised its band system to US$40-US$50 (Reuters, June 24 2005). This band system may be revised further in lieu of a smooth global supply, which are not on the horizon.

THEORY:

The research is informed by the following theoretical assumptions:

The high price of oil is battering national economies, though the full extent of this will be actualized in the coming months or years. Current oil supplies have been inked and hedged in advance, at lower costs, though the rising band systems (or baskets) are placing a strain on any negotiated deals. To avoid a global industrial meltdown, or an outright collapse, oil supplies may have to be renegotiated in favor of major industrial powers like India and China to keep a crucial part of the global commerce running. There might be a further shift of basic, crucial manufacturing to these countries.

Here is a regional breakdown of scenarios underpinned by this research’s theoretical assumptions:

China: If its vast industrial expanse is threatened by an acute energy shortage, it might seize the purportedly oil-rich Spratly Islands, a chain of reefs also claimed by Malaysia, Vietnam, Brunei, Taiwan and the Philippines – all of whom are vested with greater legitimacy under the UN’s Law of Seas Convention. China’s recent moves to acquire Unocal, and even Exxon, hints at its desperation for oil. Further military escalations in the South China Sea are a distinct possibility to avert internal chaos. Taiwan may reunite with the mainland for economic reasons.

India: Now in a uniquely historical role to dictate terms to the West. Not only does it handle vital software infrastructure for MNCs, its call centers are crucial to international commerce. No other nation can produce call centers in such colossal numbers within a very short time. A shutdown of both – even for a day – will lead to financial mayhem. The linguistic edge India enjoys in terms of geopolitical power is largely ignored in international relations texts. Its industry is more service-oriented vis a vis China, and therefore less vulnerable to oil shocks.

Japan: Has been experimenting with alternative power sources for decades, some of which are already operational. Its military capabilities are limited.

Europe: Another region with a long tradition of experimentation with alternative energy. In a better position than most to weather an oil crisis.

South Korea: In a similar situation to Japan, but without a long track record of developing alternative power sources. Historically, it has resisted Chinese hegemony and might align itself to the US, even with a belligerent North Korea factored out.

Russia: Through its enormous reserves of oil and gas, Russia may aggrandize its geopolitical leverage in Europe. In the short-term, before a multifarious energy infrastructure is in place, the EU may have to make concessions to Russia.

Venezuela, Central Asia, Southeast Asia, North Africa and the Middle East: Has oil but no military capability to counter external threats.

Africa and South America: International Realism will leave little breathing space for these regions by virtue of their internal weaknesses.”

More by activist and researcher, Matthew Maawak.