Peak Oil

From Der Spiegel

The term "peak oil" is used by energy experts to refer to a point in time when global oil reserves pass their zenith and production gradually begins to decline. This would result in a permanent supply crisis. Fear of it can trigger turbulence in commodity markets and on stock exchanges.

A study by a German military think tank has analyzed how "peak oil" might change the global economy. It warns of shifts in the global balance of power, of the formation of new relationships based on interdependency, of a decline in importance of the western industrial nations, of the "total collapse of the markets" and of serious political and economic crises. last week the Guardian reported that the British Department of Energy and Climate Change is keeping documents secret which show the UK government is far more concerned about an impending supply crisis than it cares to admit.

Oil will determine power. The Bundeswehr Transformation Center writes that oil will become one decisive factor in determining the new landscape of international relations. The relative importance of the oil-producing nations in the international system is growing. These nations are using the advantages resulting from this to expand the scope of their domestic and foreign policies and establish themselves as a new or resurgent regional, or in some cases even global leading powers. This could result in a more aggressive assertion of national interests on the part of the oil-producing nations.

The Bundeswehr Transformation Center expects that a supply crisis then the proportion of oil traded on the global, freely accessible oil market will diminish as more oil is traded through bi-national contracts.. In the long run, the study goes on, the global oil market, will only be able to follow the laws of the free market in a restricted way. Bilateral, conditioned supply agreements and privileged partnerships, such as those seen prior to the oil crises of the 1970s, will once again come to the fore. the consequences resulting from a shortage of petroleum. As the transportation of goods depends on crude oil, international trade could be subject to colossal tax hikes. Shortages in the supply of vital goods could arise as a result, for example in food supplies. Oil is used directly or indirectly in the production of 95 percent of all industrial goods. Price shocks could therefore be seen in almost any industry and throughout all stages of the industrial supply chain. In the medium term the global economic system and every market-oriented national economy would collapse. Since virtually all economic sectors rely heavily on oil, peak oil could lead to a partial or complete failure of markets. There would be a relapse into planned economy and government rationing and the allocation of important goods or the setting of production schedules and other short-term coercive measures to replace market-based mechanisms in times of crisis. A restructuring of oil supplies will not be equally possible in all regions before the onset of peak oil. It is likely that a large number of states will not be in a position to make the necessary investments in time or with sufficient magnitude. If there were economic crashes in some regions of the world, Germany would not escape the crises of other countries, because it's so tightly integrated into the global economy. Parts of the population could perceive the upheaval triggered by peak oil as a general systemic crisis. This would create room for ideological and extremist alternatives to existing forms of government. Fragmentation of the affected population is likely and could in extreme cases lead to open conflict and a crisis of political legitimacy that raises fears for the survival of democracy itself.

Experts argue that nations dependent on oil imports will be forced to show more pragmatism toward oil-producing states in their foreign policy. Political priorities will have to be somewhat subordinated to the overriding concern of securing energy supplies.

For example, Germany would have to be more flexible in relation toward Russia's foreign policy objectives.The relationship with Russia, in particular, is of fundamental importance for German access to oil and gas. For Germany, this involves a balancing act between stable and privileged relations with Russia and the sensitivities of Germany's eastern neighbors. Germany, if it wants to guarantee its own energy security, should be accommodating in relation to Moscow's foreign policy objectives, even if it means risking damage to its relations with Poland and other Eastern European states.

It would also have to show more restraint in its foreign policy toward Israel to avoid alienating Arab oil-producing nations. A readjustment of Germany's Middle East polic, in favor of more intensive relations with producer countries such as Iran and Saudi Arabia, which have the largest conventional oil reserves in the region, might put a strain on German-Israeli relations, depending on the intensity of the policy change.

According to the Guardian, the DECC, the Bank of England and the British Ministry of Defence are working alongside industry representatives to develop a crisis plan to deal with possible shortfalls in energy supply.