A study by a German military think tank has analyzed how “peak oil” might change the global economy. The internal draft document — leaked on the Internet — shows for the first time how carefully the German government has considered a potential energy crisis.
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 — and fear of it can trigger turbulence in commodity markets and on stock exchanges.
The issue is so politically explosive that it’s remarkable when an institution like the Bundeswehr, the German military, uses the term “peak oil” at all. But a military study currently circulating on the German blogosphere goes even further.
That’s from an article last week in Der Spiegel online. None of this is a surprise to CP readers (see “Peak oil production coming sooner than expected“) or to those who follow the once staid International Energy Agency (see World’s top energy economist warns: “We have to leave oil before oil leaves us”).
But what is remarkable is the source — and the bluntness of the report’s conclusions about political and economic impacts.
“The study, whose authenticity was confirmed to SPIEGEL ONLINE by sources in government circles” is by “the Future Analysis department of the Bundeswehr Transformation Center, a think tank tasked with fixing a direction for the German military”:
According to the German report, there is “some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later.”
This is what they expect for the 2020s and beyond:
- 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.”
- Increasing importance of oil exporters: For importers of oil more competition for resources will mean an increase in the number of nations competing for favor with oil-producing nations. For the latter this opens up a window of opportunity which can be used to implement political, economic or ideological aims. As this window of time will only be open for a limited period, “this could result in a more aggressive assertion of national interests on the part of the oil-producing nations.”
- Politics in place of the market: The Bundeswehr Transformation Center expects that a supply crisis would roll back the liberalization of the energy market. “The proportion of oil traded on the global, freely accessible oil market will diminish as more oil is traded through bi-national contracts,” the study states. 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.”
- Market failures: The authors paint a bleak picture of 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.”
- Relapse into planned economy: Since virtually all economic sectors rely heavily on oil, peak oil could lead to a “partial or complete failure of markets,” says the study. “A conceivable alternative would be 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.”
- Global chain reaction: “A restructuring of oil supplies will not be equally possible in all regions before the onset of peak oil,” says the study. “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 could be affected. Germany would not escape the crises of other countries, because it’s so tightly integrated into the global economy.
- Crisis of political legitimacy: The Bundeswehr study also raises fears for the survival of democracy itself. 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.”
It would have been nice if there had been any reporting on how Germany might get itself off of oil, given how dire this report is.
Interestingly, the article notes:
The leak has parallels with recent reports from the UK. Only last week the Guardian newspaper reported that the British Department of Energy and Climate Change (DECC) is keeping documents secret which show the UK government is far more concerned about an impending supply crisis than it cares to admit.
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. Inquiries made by Britain’s so-called peak oil workshops to energy experts have been seen by SPIEGEL ONLINE.
You can read the Guardian piece here: “Peak oil alarm revealed by secret official talks.”
Replacing oil in the transportation sector requires strong government action two decades before a peak because of the time needed to replace vehicles and fuel infrastructure. That was the conclusion of a major study funded by the Department of Energy in 2005 — yes, the Bush DOE — on “Peaking of World Oil Production.”
The DOE report noted: “The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary.”
Ouch! The same central point is true about global warming. If we want global carbon dioxide emissions to peak and start declining, the planet will need to start aggressive mitigation policies two decades in advance.
Since the climate and clean energy bill has died in the U.S. Senate with no serious possibility of comprehensive legislation for at least the next two years and likely the next several, the best chance of the nation proactively developing a peak oil strategy is all but gone.
For that reason, the likely impacts of peak oil will continue to be a focus of Climate Progress.
- What will it take to end our oil addiction?
- Science/IEA: World oil crunch looming? Not if we can find six Saudi Arabias!
- IEA says oil will peak in 2020
- Deutsche Bank: Oil to hit $175 a barrel by 2016, which “will drive a final stake into long-term oil demand,” spurred by a “disruptive technology” “” “the hybrid and electric car, that will very likely have a far greater positive impact on oil efficiency than the market currently expects”
- Merrill: Non-OPEC production has likely peaked, oil output could fall by 30 million bpd by 2015
- Why electricity is the only alternative fuel that can lead to energy independence