Dwindling global oil supplies are leaving the world ever more reliant on a group of unstable countries – many of which are themselves facing major domestic problems right now.

Believe it or not, many of the world’s major oil exporters cannot maintain their own domestic energy requirements. Venezuelan consumers endure electricity blackouts of “seven or eight hours a day,” but less well known is the situation in the Middle East, where residents are facing rolling power outages just as summer temperatures soar, and with it, the demand for air conditioning.

Furthermore, a report in Forbes this month points to growing fears about the stability of Saudi Arabia, for decades the swing producer maintaining the world’s oil exports at a steady level. While any upheaval in any of the main oil exporting nations would be felt across the globe, Saudi is a special case, as its reserves are acquiring an ever more geopolitical significance due to the decline of non-Opec oil. The West is becoming more reliant on the health of this highly secretive nation – essentially, if Saudi Arabia sneezes, the rest of the world catches cold.

It’s a fact of life that oil tends to come from unstable places – the very term petro state is shorthand for a country with “weak institutions and a malfunctioning public sector,” and an economy based around imports, not exports, due to exchange rates. Power is in the hands of the few, essentially the government, that control the petro-rent, and these are essentially violent, unhappy places for much of the population.

The reality is that seven of the countries currently listed by the US Energy Information Administration as the nation’s current Top 15 sources of crude oil are also on the State Department’s Travel Warning List, for their “long-term, protracted conditions that make a country dangerous or unstable.” These are: Saudi Arabia, Mexico, Nigeria, Iraq, Columbia, Algeria, and the Democratic Republic of the Congo – with Saudi Arabia, Mexico and Nigeria being respectably second, third and fourth most important source of US imports. (Of course, Canada, the US’s largest single source of oil imports, is a model of staid stability – but many observers question the future expansion of its oil sands output which has arguably been overhyped for years.)

Oil fuels our industry, maintaining our lifestyles – and is as addictive to the West as it is to the producing nations. As US president Barack Obama said, when addressing the nation on June 14 in the immediate aftermath of BP’s Deepwater Horizon oil disaster, “Each day, we send nearly $1 billion of our wealth to foreign countries for their oil.” This is all money that isn’t being invested at home. It’s going on a product that is causing global climate change, which is making many unstable parts of the world more desperate, with geopolitical commentators now talking of coming wars over resources as basic as water. So addicted are we to oil that we apparently have little money left over to prepare for the transition to a future based around renewable energy. Instead, buying vast amounts of imported oil is taking money out of the US domestic economy and funding, in the main, rogue states that are adding to global security risks.

Read the State Department’s travel advisory about Nigeria for an idea of the kind of regimes that oil is maintaining:

Violent crime committed by individuals and gangs, as well as by persons wearing police and military uniforms, is a problem throughout the country.

Since January 2009, over 111 foreign nationals have been kidnapped in Nigeria, including 18 in 2010. Six foreign nationals were killed in connection with these abductions; two U.S. citizens were killed in separate abduction attempts in Port Harcourt in April 2010. Local authorities and expatriate businesses operating in Nigeria believe that the number of kidnapping incidents throughout Nigeria is underreported. Since March 2010, five improvised explosive devices (IEDs) have been detonated in the Niger Delta region with no reported casualties.

It’s the same situation in Algeria, Columbia and the Congo – yet the remaining, more stable petro states are in turmoil of some sort, albeit less headline grabbing. An item in Abu Dhabi English language newspaper The National earlier in July, Gulf braces for power shortages, is worth quoting at length:

The big heat has come early to the Gulf, and residents opting to stay are settling in for another summer of discontent punctuated by power cuts.

All Gulf states except Qatar face electricity shortages that intensify during the airconditioning season. Already this year, the emirate of Sharjah as well as Kuwait and Saudi Arabia have suffered disruptions.

On May 10, a 90-minute power cut grounded flights at King Abdul Aziz International Airport near Jeddah.

Last month, a series of electricity disruptions afflicted cities in the north and west of Saudi Arabia, including Mecca, Medina, Jeddah and Taif, amid temperatures reaching 52°C. Some schoolchildren taking exams passed out from the heat.

It goes on to state that other than in Iraq, where war destroyed much of the grid, these electricity blackouts are due to “rapid industrialisation and population growth.” Underpinning it are low domestic energy prices that attract energy-intensive industries and “wasteful consumer habits,” with the national focus on obtaining expansion as quickly as possible that overlooks any form of long-term energy efficiency. (This manic drive to have something to show for the oil bonanza is common to all petro states.) The article gives, as example:

Karim Elgendy, an architect and sustainable design researcher based in San Francisco, also believes the style of architecture has played a role. “Rapid urbanisation in the UAE, as well as in other GCC member states, has been characterised by forms of imported western architecture which were not environmentally responsive to the region’s climatic conditions,” he said. “High-rise buildings with large areas of glass facade, and huge demand for electricity for air conditioning can be seen in all new urban centres such as Dubai and Abu Dhabi, as well as other cities such as Riyadh and Doha.”

Saudi Arabia is the classic example of how striking oil can be a blessing and a curse. An item in Forbes earlier in the month, Saudi Arabia's House Of Cards, peels back the veneer. It cites an open letter to Saudi royals allegedly written by dissident prince Turki bin Abdul Aziz Al Saud, a prominent exile in Cairo. In this the prince supposedly states the government is no longer able to contain grassroots discontent, and that his fellow royals would be advised to flee before the masses "cut off our heads in streets." (A June 14 edict by the Saudi Press Agency claims the prince told them this letter was “fabricated by enemy parties wishing to spread confusion and excitement” – which seems, as far as I can tell, to be an implicit warning to the domestic media that reporting on the item will result in a rather swift visit from Saudi security forces.)

The Forbes article quotes from Matthew Simmons’ peak oil classic, Twilight in the Desert, with questions of just how much longer the highly secretive state can go on as the world’s major oil producer considering “no major new energy fields have been found in Saudi Arabia since the 1970s, and the chances of such discoveries are now, in Simmons' words, ‘remote.’” But, stark as this may be, it’s followed by the sucker punch: Saudi Arabia doesn’t have to run out of oil to face collapse, “thanks to the country's ballooning entitlement class.” It states:

The actual size of the Saudi royal family is subject to some debate, but informed estimates a few years ago placed the number at more than 30,000 members, with some 4,000 princes each afforded a luxurious monthly stipend of tens of thousands of dollars apiece. And because of officially sanctioned polygamy, their ranks are swelling exponentially, projected to reach 60,000 or more by 2020. Needless to say, their allowances, and the attendant extravagant indulgences, are possible solely because of Saudi petrodollars. All of which has prompted an insatiable appetite for ever greater production and consumption of the Kingdom's lifeblood.

Meanwhile, life is getting tougher for “an impoverished underclass” – essentially, everyone else outside the royal elite. It states: “Since the oil boom of the 1970s, per capita income in Saudi Arabia has constricted precipitously, falling from $28,000 in the early 1980s to below $7,000 in 2001.”

According to a separate Bloomberg item, “Saudi Arabian inflation accelerated to a 13-month high in June as housing and food costs increased in the largest Arab economy.”

The Saudi government cannot afford for the global economy to slip further, cutting both the volume of its own oil exports and prices per barrel. Theirs is a very expensive place to run.

The geopolitical implications of all this are staggering. Saudi Arabia, which has been accused of having a greater involvement in the 9/11 attacks than most realize and has shown subsequent “indirect troublemaking in Iraq and Afghanistan,” has long been a source of regional instability. But that will be nothing as to the turmoil that will unfold from any domestic upheaval, such as an Iranian-style revolution (upheaval in that country, in 1979, caused the second energy crisis of the decade, mitigated somewhat by the Saudis increasing output). Groups like al-Qaeda have long been “highly critical of and violently opposed to western influence within the country,” especially its close relations with the US, and are reportedly working to bring about revolt.

What, then, would an Islamic revolution in Saudi Arabia mean to the oil consuming world? In the immediate term, supply would cease, due to the domestic turmoil. And beyond that, there’s every reason to believe the new government would be less inclined to export so much oil to the West. This, is in effect, the nuclear option. As far as the rest of the world is concerned, there is not enough alternate oil to go around; right now a Saudi oil embargo would bring the economies of many Western nations to a grinding halt. It’s all due to diminishing surplus production capacity.

A June Bloomberg report, Oil Price Swings to Worsen as Spare OPEC Capacity Shrinks: Energy Markets, stated that “OPEC’s shrinking spare production capacity increases traders’ concern about supply shortages.” This states that output of non-Opec oil is unable to keep up with global demand, putting more and more importance on Opec’s ever dwindling spare capacity. It states:

OPEC, supplier of 40 percent of the world’s oil, pumped 29.4 million barrels a day in May, with capacity of another 5.5 million barrels idled, according to data compiled by Bloomberg. The group’s spare capacity was as low as about 2 million barrels a day in July 2008, when oil prices peaked, before tumbling as the global recession crimped energy consumption.

Spare production capacity will drop as supplies from outside the group fail to keep up with demand, according to the IEA. The agency estimates world oil usage will rise 6.4 percent by 2015 to 91.93 million barrels a day, while output, excluding OPEC crude, will increase 3.7 percent. That means the world will need more of the group’s oil to meet demand.

This seems to be saying that, as world energy demand creeps up – earlier this week China was confirmed as the world's biggest energy consumer, burning more energy than the US – the key figure to watch is Opec’s surplus capacity. To which I’d add that, to all intents, the term diminishing spare production capacity can be used interchangeably with peak oil. If Opec’s surplus cannot meet demand, we will surely have passed the tip of Hubbert’s peak, and find ourselves on the downslope – which is when the market turmoil and recession sets in.

But things could get difficult a lot sooner than that. It doesn’t require the physical limits of the Earth’s oil to have been reached – reserves are now low enough that domestic turmoil at any one of the major oil producers will have the same unfortunate results to most of the world. As Bloomberg states:

Saudi Arabia accounts for almost 60 percent of OPEC’s spare capacity, according to Bloomberg estimates. The country is investing as much as $30 billion on new supplies over the next five years to keep a minimum 1.5 million to 2 million barrels-a- day of spare capacity, Oil Minister Ali al-Naimi said in a May 18 interview with consultant Petroleum Policy Intelligence.

“Markets are sensitive to when OPEC spare capacity starts getting down toward 3 million barrels a day,” according to Wittner of Societe Generale. Should supplies be disrupted from a producer such as Iran or Nigeria “there would not be much left after that,” he said.

Reading between the lines, it’s all a delicate balancing act. The rogue states that produce oil are now key players in this geopolitical game. At the same time, we are relying more and more on Opec output, as this is where the world’s largest accessible reserves are. And Opec output is more and more dependent on Saudi reserves. Even without some calamity befalling global basket cases like Nigeria or Venezuela, we are desperately reliant on two distinctly plausible possibilities not happening: Saudi output dropping, or the Saudi economy being plunged into chaos for some internal economic or political reason.

It’s a race to failure. But, then, that’s the reality of betting everything on a non-renewable source.