Oil - cold or hot war ?

Posted in Other | 15-Jun-06 | Author: Dieter Farwick

"Most of the oil producing countries depend on the revenues from their oil production."
"Most of the oil producing countries depend on the revenues from their oil production."
The facts and figures are well known and fill libraries:

  • World crude oil production will reach its peak and/or depletion midpoint within the next 5 – 10 years. This is the beginning of the end of the world’s oil era.

  • World demand for the “blood” of the developed economies will increase from the present 83 million barrels per day to 90 million in 2010 and 115 million barrels per day in 2030.

  • The oil producing countries are not able to increase their production to fill the gap.

  • Crude oil prices will go up from the record high of $70 per barrel in 2006 to maybe $200-250 as some experts expect. It is well known that there is a direct link between oil prices and economic growth. An OECD study concludes that an increase of $10 per barrel costs 0,4% of the world’s economic growth.

    Long before the worst case of $200-250 per barrel, many countries will see the end of their economies and of the present level of quality of life.

  • In the mid-term, there is no sufficient substitute for oil through replacing it with gas or renewable and nuclear energy.

  • Most of the oil producing countries depend on the revenues from their oil production to mitigate serious domestic problems. Only few of them invest in their future “beyond oil.”

  • Some oil (and gas) producing countries have recognized that they are in a very strong position. They even use their assets as strategic weapons for blackmailing their dependent consumers, who have not diversified their energy supply.

If this explosive spiral is not stopped, conflicts and wars for scarce resources like oil (and gas) would be very likely.

Is there a chance to stop this dangerous spiral? To find out we have to answer some questions:

  • Do we live at the mercy of the oil producing countries?

    Yes, if we sit on our hands and wait for a miracle – a deus ex machina.

    No, if we develop a counter-strategy

  • Do the oil producing countries slaughter the cow they want to get the milk from?

    Yes, they do not have a long-term strategy. To escape current social and political problems they tend to make the best of their present situation

  • Do we have to sit on our hands and wait for their next move or blackmail?

    No ,we must convince the oil producing countries that there are common interests that can prevent the worst case scenario

  • Do the oil producing countries realize that they will lose their unique power position based upon oil within the next 10-15 years to come?

    They could. 33 of the 48 biggest oil producing countries have already passed their peak and/or their depletion midpoint. These facts are available to all countries. But so far, the temptation prevails to follow as long as possible the present comfortable path that does not ask for hard choices.

  • Are oil producing countries ready to increase their rate of production to put a cap on the prices?

    They have two options:

    1) They could do so – only to a very limited extent - to stop climbing prices. They then run the risk that they sell their oil at lower prices than they might get in the future. They need incentives to do so.

    2) The second option is not to increase their production. This would increase the worldwide competition for oil and would bring higher revenues. They need incentives not to do so.

  • Are the oil producing countries the only cost drivers?

    By no means. The consuming countries are cost drivers, too. Too many do not care about the development – be it in the economy or industry or in private consumption.

    In parallel, many oil consuming countries have reduced their strategic reserves. Thus, they are very vulnerable – even by short interruptions of the oil flow. In addition, there is lot of speculation in this business. Those people earn a lot of money buying low and selling high.

  • Is there a chance that a sufficient identity of interests of the oil consuming countries will lead them to form an alliance or will they continue to fight against each other for their short-lived national interests?

    So far, the answer is no. Each country tries to get the biggest possible piece of the cake. The bilateral travel diplomacy between oil consuming and oil producing countries speaks a clear language. The winner takes all. But - the cake is getting smaller and the slices have to become bigger to feed the ever growing needs.

Where lies the solution?

First of all: We are condemned to find a solution in order to avoid future conflicts and wars that would be much more expensive than any peaceful solution. We have to find out how to develop a set of mutual interests between oil producing and oil consuming countries as well as to avoid the speculation.

To put it simple: The oil consuming countries need the oil, the oil producing countries need the money to mitigate current social and political problems and to invest in the future “beyond oil.” Speculation is out if and when prices will be frozen at a fair level.

Dieter Farwick, WSN Global-Editor-in-chief: "We have to transfer the present one-sided dependency into a mutual dependency."
Dieter Farwick, WSN Global-Editor-in-chief: "We have to transfer the present one-sided dependency into a mutual dependency."
We have to transfer the present one-sided dependency into a mutual dependency with mutual benefits.

The oil consuming countries should take the initiative. They should try to form an alliance of the main consuming countries like the OECD countries, or the G8 plus China and India or different groupings – as well as the big oil companies.

This coalition should guarantee the oil producing countries

  • a fixed price of $50 per barrel for the next 10 - 20 years

  • a technology transfer to enable a smooth transition into the future “beyond oil”

  • not to take military actions to get their hands on the resources

  • financial and economic aid for an economic and ecological oil production to get as much as possible out of the fading reserves at an affordable cost.

If such an agreement is not achievable, the consuming countries should decide to cut oil import annually by 5%.

This could be done

  • by a rigid energy saving program with attractive incentives and remarkable punishment

  • by accelerating the development of alternative renewable energies

  • by substituting oil with gas for the next decades

  • by enhancing public transport

  • by a technology transfer concerning alternative energies

  • to increase strategic reserves of energy and strategic raw material to counter unintended shortfalls

  • by developing cheaper transport of energy over long distances

I do not pretend to offer a “king’s way.” But there is no other alternative to expensive future conflicts and wars. Terrorist attacks against vulnerable installations could make the development even worse than I have described.

We cannot wait. Let’s start now with further thoughts and with first steps.