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Jeff Rubin

Germany, Britain brace for peak oil Add to ...

Why are the folks at the Bundeswehr Transformation Centre, a German military think-tank, already planning for peak oil? Probably for the same reason the British Department of Energy, in concert with the Bank of England and the British Department of Defense, has ordered similar-and equally secret-studies on its impact.

Despite repeated government assurances to the contrary, the global oil supply doesn't seem to be growing much anymore. In fact, the Bundeswehr Centre study says that oil production may peak this year.

Most people judge peak oil concerns by the prevailing oil price. That prices have plunged from their triple-digit perch is proof enough to them that we need not worry about any imminent peak.

What they forget is where we're coming from.

The deepest global recession in the entire post-war period can cut oil prices lots of slack while demand is contracting; peak oil isn't a problem if the economy it powers is shrinking. For the first time since 1983, world oil demand fell last year, bringing oil prices tumbling down. But recessions, even the deepest, only last so long.

The first thing you notice about a recovering economy is that it starts burning more fuel. The second is that oil prices are suddenly rising again.

Those prices are already twice as high as their lows during the recession and already at levels that, three years ago, would have been all-time highs. And that's with the economies of the traditionally large oil-consuming countries in the world, like the 19-million-barrel-a-day US economy, still miles below their pre-recession peaks.

So while oil production may not have peaked in a geological sense, it may already have done so in a more important economic sense. Geologically, production can be boosted by accessing ever more costly and environmentally problematic sources of non-conventional supply, like tar sands. But as we have seen from the last recession, the global economy can't run on the prices needed to bring that oil out of the ground.

The German study paints a bleak picture of the post-peak world: political power quickly shifts from major oil-consuming economies to major oil-producing economies. Less and less oil is traded on the open market, while more and more is traded between nation states, with national oil companies entering into long-term supply agreements that are tied to broader political and military considerations. And military alliances coalesce around the security of energy supply, rather than between countries with shared political or economic principles.

Perhaps these are the contours of the post-peak world. But military strategists shouldn't underestimate the power of triple-digit oil prices to change the nature of our economies and, hence, our dependence on the fuel.

Nevertheless, it's reassuring to know that at least some of our governments are thinking about peak oil, despite the fact that they still feel they must hide their concerns from their voters.

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