Peak Oil: The Effects

This is from “Tipping Point: Near-Term Systemic Implications of a Peak in Global Oil Production – An Outline Review” -by David Korowicz of Feasta and the Risk/Resilience Network.   I posted this last month but it bears repeating:

Download the report (56 pages, PDF format, 6.5MB)

  • A decline in energy flows will reduce global economic production; reduced global production will undermine our ability to produce, trade, and use energy; which will further decrease economic production.
  • Credit forms the basis of our monetary system, and is the unifying embedded structure of the global economy. In a growing economy debt and interest can be repaid, in a declining economy not even the principal can be paid back. In other words, reduced energy flows cannot maintain the economic production to service debt. Real debt outstanding in the world is not repayable, new credit will almost vanish.
  • Our localized needs and welfare have become ever-more dependent upon hyper- integrated globalised supply-chains. One pillar of their system-wide functioning is monetary confidence and bank intermediation. Money in our economies is backed by debt and holds no intrinsic value; deflation and hyper-inflation risks will make monetary stability impossible to maintain. In addition, the banking system as a whole must become insolvent as their assets (loans) cannot be realised, they are also at risk from failing infrastructure.
  • A failure of this pillar will collapse world trade. Our ‘local’ globalised economies will fracture for there is virtually nothing produced in developed countries that can be considered truly indigenous. The more complex the systems and inputs we rely upon, the more globalised they are, and the more we are at risk from a complete systemic collapse.
  • Another pillar is the operation of critical infrastructure (IT-telecoms/ electricity generation/ financial system/ transport/ water & sewage) which has become increasingly co-dependent where a systemic failure in one may cause cascading failure in the others. This infrastructure depends upon continual re-supply; embodies short lifetime components; complex highly resource intensive and specialized supply-chains; and large economies of scale. They also depend upon the operation of the monetary and financial system. These dependencies are likely to induce rapid growth in the risk of systemic failure.
  • The high dependence of food on fossil fuel inputs, the delocalisation of food sourcing, and lean just-in-time inventories could lead to quickly evolving food insecurity risks even in the most developed countries. At issue is not just food production, but the ability to link surpluses to deficits, collapsed purchasing power, and the ability to monetize transactions.
  • Peak oil is likely to force peak energy in general. The ability to bring on new energy production and maintain existing energy infrastructure is likely to be severely compromised. We may see massive demand and supply collapses with limited ability to re-boot.
  • The above mechanisms are non-linear, mutually re-enforcing, and not exclusive.
  • One of the principle initial drivers of the collapse process will be growing visible action about peak oil. It is expected that investors will attempt to extract themselves from ‘virtual assets’ such as bond, equities, and cash and convert them into ‘real’ assets before the system collapses. But the nominal value of virtual assets vastly exceeds the real assets likely to be available. Confirmation of the peak oil idea (by official action), fear, and market decline will drive a positive feedback in financial markets.
  • A major collapse in greenhouse gas is expected, though may be impossible to quantitatively model. This may reduce the risks of severe climate change impacts. However the relative inability to cope with the impacts of climate change will be much greater as we will be much poorer with much reduced resilience.
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