Perfect storm

Let’s talk about two of the 4 storms. A couple years ago, when consumption and GDP were going full blast, our prosperous world was rapidly approaching the point at which half the total possible production of crude oil would have been achieved. Oil is a limited resource; the biggest easiest to reach reserves were reportedly depleted; and there weren’t significant new finds to replace them. Any further oil production past ‘peak production’ would become an extremely expensive enterprise. The peak production point, represented as the top of a bell curve commonly referred to as The Hubbert Curve, probably occurred in 2005. Hubbert had predicted that, as the production levels dropped from the peak, prices would rise. Sure enough, after that, oil prices began to rise until they reached levels that threatened the existence of cheap oil -dependent industries like commercial airlines, SUV manufacturers, and exurban mcmansion builders.

The experts were projecting scenarios of over $200/ barrel oil for the foreseeable future. Since everything we do [agriculture, medicine, manufacturing, transportation, shelter, heating and cooling, etc] depends on cheap oil, this was a serious threat to our American [western] way of life. Since we were depending on oil imports from the middle east, the oil rich countries gained relative power in our political scene and simultaneously nationalized their oil industries. Resentments and worries about whether or not we could still control the flow of oil in our direction resulted in policy planning involving military invasions of those countries. Was our ability to keep driving SUV’s worth the life of your neighbor’s enlisted son? Apparently yes. But let’s not discuss that; instead let’s just convince your neighbor that her son died at the hands of crazy muslim terrorists. That explanation makes her loss so much more palatable for the rest of us.

But I digress. Back to peak oil: presumably, hyper-inflation was to have been the inevitable result of high oil prices since that would increase the price of everything made with oil, which of course is everything. Peak oil uber-doomers were projecting that nobody would be able to get food when truckers couldn’t afford to pull up to the grocery stores; that nobody would be able to drive anywhere, disrupting commerce and incomes; that hospitals would not have any pills, plastic tubing or electricity; that giant school districts would shut down due to inability of students to get there by bus. If you wanted to eat, work, and educate your kids you had better move into walkable towns with your own personal hoard of foodstuffs and herbal medicines to last twenty years. And don't count on alternative energy: that requires more crude oil for manufacture we hadn't arranged yet and it doesn't address the scale of our dependence. You can't run an airline on the inflated price of solar panels even if you could figure out how to fly solar.


Perfect storm

All this peak oil inflation talk has recently come into question due to the arrival of Storm 3, Financial Collapse, which has already been named The Great Recession and eventually shall become The Greatest Depression Ever. Two things have become clear:

1. Oil prices will be suppressed by demand destruction. Due to the collapse of credit, the enemy to guard against would be deflation not inflation. Getting out of both secured and unsecured debt would become more important than hoarding in a house from which you could be foreclosed/evicted. Rather than gas prices impacting workforce transportation to disrupt commerce, financial collapse destroys income to purchase anything including gas.

2. The slope of the Hubbert curve tail would be different due to Storm 3 demand destruction. Its long -assumed "bumpy plateau" and smooth descent tail would look more like a giant roller coaster ride, bringing on even earlier and repeat bouts of economic upheaval and social unrest.

So “The End Of The World As We Know It” is arriving sooner due to Storm 3, causing oil production levels drop off sooner. There would be no inflation. And we still could not afford to buy those deflated necessities due to income collapse.

So is peak oil going to cause TEOTWAWKI? No. It got the ball rolling by complicating the financial storm with initially high oil prices. But storm 3 is the big mover now. Oil production will still drop off due to demand destruction but the oil production conundrum will become a moot point. Due to the current financial collapse, TEOTWAWKI arrives long before the depletion of the cheapest producible oil reserves.

But Peak Oil will prevent us from climbing out of the financial abyss. We climbed out of the last Great Depression because we had increasing levels of oil production available at the time. This is how we supported both WWII and the manufacturing base of the post war era. But because we have passed "Peak" Oil production, calls for stimulus spending and war spending jobs will not work this time. As productivity ramps up, the price of the increasingly expensive oil to maintain it would threaten the system again. So these Keynesian economic solutions from the 1940's era are no longer feasible. We can't outrun this financial crisis. Better take cover; thanks to peak oil, it's a perfect storm.