Further Down the Road
I’ve always encouraged my readers to take a broader look on the shape of things to come — and to look beyond well curated political narratives. What rarely fits into these stories, is the vital role energy plays in the economy and how its technically infeasible to replace one form of it with another at will. Political ambitions and cold war rhetoric aside, this predicament of irreplaceable resources alone can and most probably will change the existing world order — much sooner than expected.
What is currently going on in Ukraine is one of the worst possible ways to install this new world order: using brute military force (1). The world had already got enough to suffer from: relatives lost to Covid, power shortages, inflation and supply disruptions threatening livelihoods, climate change wreaking havoc on neighborhoods and habitats alike. War raises suffering to a whole new level for the parties involved, but also serves as an expensive distraction from all other things happening at the same time.
This war has a special significance though: it openly questions Europe’s (and in a wider sense the USA’s) hegemony over the continent, and attempts to impose a new (or rather, rebuild an old) world order in the most gruesome way. It does this on the basis of radical changes in energy and resource availability to the western part of the continent, and tries to leverage this imbalance to its favor.
It is a lose-lose game however. In a world after peak oil (which has happened silently, almost unnoticed in 2018 ) and with one of the top three oil producing countries of the world involved, it now has the potential to cause damage to the entire world economy. There is nothing left to sacrifice in today’s world: by now every buffer has been eliminated or lived up, and every action hurts both sides of the conflict. There is no backup supply to be turned on by the economic super-fairy. In fact, in this shortage of everything, from metals to oil, there is no wiggle room left anywhere.
If this weren’t enough, OPEC is now falling short on its promises month after month. The cartel keeps failing to increase oil production at a pace it set to itself, and now masquerades as if it were doing it by deliberate choice. In reality, behind closed doors of course, everyone in the organization’s headquarters are now praying hard, hoping that the fact that they have lost control of their output remains unseen…
Consider this: what good is a trade cartel for, if most of their production capacity is falling (African countries) and now even its key players (the Gulf states) are unable to move the needle — as they are already pumping at the top of their capacity…? What good is a trade cartel for, if soon the only thing that it will be able “decide” is how fast it wants oil production to decline…? What good is a trade cartel for, if it is hopelessly dependent on food imports to prevent riots…? And here comes the twist of fate: the Gulf states’ food (and thus stability) has been depending on Russia and Ukraine delivering wheat to them for decades now. Who is controlling whom (and what) in this game then…?
The world economy has started look like a Jenga-tower a long time ago. Having its first blocks removed and put on top many decades ago, by the end of 2021 it already looked like a large chunk of Emmental cheese — eaten by mice from the inside out. Everyone, at least those who didn’t fall to the story of infinite growth on finite planet, should know by now, that it must fall some day.
Of course, no one could (or still can) say when it would tip over and in which direction it will fall, but the recent events certainly upped the ante quite considerably. Russia has pulled out a large brick, the rest of the world did the same with their set of building blocks. It’s no question at this point that sooner or later something got to give.
Shortages of food, energy and raw materials will certainly worsen. The financial economy is under threat from some expected and probably even more yet-to-be-seen defaults — especially with now rapidly rising interest rates. The looming long descent of oil production (paused by this 2-year holiday from reality), has just been brought closer with the disturbance to the world economy — unleashed by this terrible conflict.
Perhaps not coincidentally, Russia itself has passed its peak oil production before the pandemic began, and been on a bumpy plateau since 2007. Trade sanctions — and the fear of them being enacted — has already made considerable impact on Russia’s oil exports. Western oil firms are now withdrawing their money — and even more importantly their technology involved in extracting ever harder to get resources. This, together with the fact that most of the country’s reserves will be hard to get by the end of this decade (becoming ever more technology and thus energy intensive to extract) will almost ensure a steady fall to oil production in Russia.
Perhaps — besides an eager desire to restore the Soviet Union — this was another reason to start the war now… while the oil lasts, revenues are high and the effects of the passing peak is not yet felt by society. I believe we don’t have to wait long for the other big producers to realize that their production will not last forever and enter their mid-life crisis... Next country to watch: the United States.
Until next time,
B
Notes:
(1) Personally I do not find any war started by any nation justified, let it be a ‘war on terror’, or the one going on just a few hundred kilometers east from where I live. I was equally shocked to see the explosions on Baghdad’s night sky two decades ago and felt the same anxiety for the residents who happened to live there… just like today, after seeing the residents of Kyiv and other cities suffer from bombardment.
