In the last five or six years at least 20 major studies have been published by governmental and non-governmental organizations that either deal with or touch upon the possibility of severe energy shortages developing in the near future.
Studies done by governmental entities, however, are rare for nearly all of the world's governments still prefer to wait as long as possible before confronting the myriad of problems that will accompany declining oil production. Exceptions to this phenomenon of denial, however, seem to be military organizations that have realistic planning baked into their DNA. All professional military services know that in the last century they have become so dependent on liquid fuels that their effectiveness would be severely degraded should shortages or extremely high oil prices develop.
Last year two military planning organizations went public with studies predicting that serious consequences from oil depletion will befall us shortly. In the U.S. the Joint Forces Command concluded, without saying how they arrived at their dates, that by 2012 surplus oil production capacity could entirely disappear and that by 2015 the global shortfall in oil production could be as much as 10 million b/d. Later in the year a draft of a German army study, which went into greater detail in analyzing the consequences of peaking world oil production, was leaked to the press. The German study which was released recently is unique for the frankness with which it explores the dire consequences which may be in store for us.
The Bundeswehr Transformation Center, the organization that prepared the study, starts with the assertion that as there are so many forces in play, it is impossible to determine an exact date for peak oil, but that it will become obvious in hindsight. The Germans also believe that it is already too late to complete a comprehensive global transition to a post fossil fuel economy. They introduce the notion of a peak oil induced economic "tipping point" that would trigger so much economic damage that it is impossible to evaluate the possible outcomes.
For the near future the study foresees that a very large increase in oil prices would harm the energy-intensive agricultural systems that produce much of our food. Not only could the costs of fertilizers and pesticides become prohibitive, but the massive amount of oil-dependent transportation needed to move agricultural products long distances could make food unaffordable for many.
The study goes on to postulate a "mobility crisis" that would arise from substantial increases in the costs of operating private cars and trucks. Although sudden shortages could be relieved by volunteer and regulatory measures, ultimately the mobility crisis would feed into and add to the worsening economic situation.
As oil is used either directly or indirectly in almost 90 percent of industrial production, major increases in the price of oil would change most price relationships. Domestic and foreign trade will have to adapt to these new relationships but doing so will likely lead to economic upheavals. As businesses transform to less oil-dependent forms of services and production, there would likely be an extended period of "transformation unemployment" that will become a major economic problem. A case could be made that our current "jobs" crisis is simply the leading edge of the "transformation unemployment" that could go on for decades.
The German study maintains that all countries on earth will sooner or later be faced with the problem of transitioning to a post-fossil fuel age. As such a transition has never happened before, there are no guidelines for how it is to be accomplished. Of great significance is the willingness of nations to implement the economic policies necessary to effect the transformation to the post fossil fuel age. Forms of government will be sorely tested. The Germans who have much experience in these matters note that only continuous improvement in individual living conditions forms the basis for tolerant and open societies. Given the widespread unemployment and high mobility costs that are almost certain to accompany the transition to a post fossil fuel world, democratic forms of government are likely to face severe challenges. We all remember the Weimar Republic. Also of note are recent studies within the OECD that show that voting for extremist and nationalist political parties tends to increase with economic setbacks.
For the immediate future, however, the German Army study foresees: 1. increasing oil prices that will reduce consumption and economic output (i.e. a recession or worse); 2. increasing transportation costs that will lead to lower trade volumes - less income for many and unaffordable food for some; and 3. pressure on government budgets as they must keep populations fed, deal with the social consequences of mass unemployment, and attempt to invest in sustainable sources of energy. Governmental revenues are bound to fall as unemployment increases along with resistance to further taxation.
In the medium term, most companies would come to realize that the global economy is going to be shrinking for a long time and act accordingly. In an indefinitely shrinking economy, savings would not be invested as profits could no longer be made or borrowing costs paid. In this environment, the banking system, stock exchanges and financial markets would have a hard time surviving.
Banks would be left with no reason to exist as they would not be able to pay interest on deposits or find credit-worthy companies or individuals. The final step would be the loss of confidence in currencies and with them the ability to carry on normal economic transactions outside of barter.
If all this sounds extreme to American ears, remember the Germans have been through far more than we have in the last century. What is interesting is the way they are telling it like they see it - no pulling of punches here.
Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.