Most peak oil theorists seem to be geologists, political commentators, or environmentalists, so I’ve read plenty on the geo-politics of peak oil. Jeff Rubin is an investment banker, which makes for a rather different angle. Forget picking dates and analyzing remaining reserves, it’s the price of oil that really matters. What happens to the economy at $100 a barrel, or $150? At what point does the oil price begin to bite into world trade? How will this affect development? What becomes of the whole globalization experiment?
“Cheap oil gives us access to a pretty big world” says Rubin, and that’s not just about holidays and travel. We can move production around to get the best labour price, as transport costs are negligible. This keeps our shops piled high with cheap consumer goods, from toys to furniture. Cheap oil has also given us access to all kinds of foods, both cheaper everyday products, and a broader range of luxuries and international delicacies (coffee being his personal favourite, and mine too).
When oil prices rise, transport costs suddenly have to be factored in, and at this point the global economy no longer makes economic sense. Transport costs will rise to the point that importing goods is prohibitively expensive. At $150 a barrel, the energy price increase “offsets all the trade liberalization of the last three decades”. There are both good and bad aspects to this. On the one hand, everything becomes more expensive, consumption drops away, and the growth rate of the economy slumps. On the plus side, offshoring production is no longer economic, and industry will start to ‘come home’. Factories will re-open for local markets, as the savings on labour in poorer countries will be cancelled out by the transport costs. That peak oil could be the saviour of the US rust belt is not a side of the debate that gets much attention, it has to be said.
The flipside of that is, of course, that those jobs will be leaving the developing world. The impact of peak oil on developing countries could be very severe, after years of gearing their economies to export markets that could vanish overnight. Kenya, for example, gains 15% of its GDP from the flower trade, flying fresh flowers to Europe – that’s an incredible vulnerability. A spike in the oil price and those planes are grounded, and 14% of the GDP wilts away on the spot.
“While returning to the lifestyle you knew a few years ago might not be something you and your family would particularly enjoy” writes Rubin, “you probably would not suffer all that much either. But for someone in the developing world just fighting his or her way out of poverty or even hunger, a step backwards could be terrible reversal in fortune.” Peak oil is going to be a major factor in development in the coming years.
What else can we look forward to in a shrinking world? More farms, fewer cars, those are pretty safe bets. Air travel ceases to be economical at around $80 a barrel, so that’s not going to survive. International cuisine may gradually disappear, but be replaced by local food and regional specialities. The pace of technological change will slow. One of the greatest periods of human migration will come to a close. More worryingly, many countries may choose to close their borders to immigration as things get tight and there isn’t quite as much to go round as their used to be. There could be rise in far-right politics.
There’s a lot here that you won’t find elsewhere in peak oil texts. Rubin examines it as an economist, extrapolating the impacts of supply and demand in a very logical and plausible fashion, and doesn’t shy away from the reality that “oil consumption and economic growth go hand in hand”. This is a post-credit crunch book, which means there’s some useful perspective on the outlook for the recession, and how quickly it will be over. “Recovery from recession will trigger a spike in oil prices that could provoke another recession” he warns. “What is at stake is nothing less than economic growth itself and hence our very standard of living.”
Chapters on climate change are less useful. For one thing, Rubin seems to believe the US is a world leader on climate change, which is a bad place to start. No wonder then that he fixes on China as the main problem, particularly on their use of coal. Convenient, but he ignores the fact that China’s emissions are our off-shored emissions, since much of it is for exports. He also ignores per-capita emissions. China is the world’s largest country – of course its emissions will be huge. A bit more balance needed on these sections I think.
Overall however, this is an insightful contribution that broadens the debate considerably.