A study by a German military think tank has analyzed how "peak oil" might change the global economy. The internal draft document -- leaked on the Internet -- shows for the first time how carefully the German government has considered a potential energy crisis.

... The issue is so politically explosive that it's remarkable when an institution like the Bundeswehr, the German military, uses the term "peak oil" at all. But a military study currently circulating on the German blogosphere goes further.

The study is a product of the Future Analysis department of the Bundeswehr Transformation Center, a think tank tasked with fixing a direction for the German military. The team of authors, led by Lieutenant Colonel Thomas Will, uses sometimes-dramatic language to depict the consequences of an irreversible depletion of raw materials. It warns of shifts in the global balance of power, of the formation of new relationships based on interdependency, of a decline in importance of the western industrial nations, of the "total collapse of the markets" and of serious political and economic crises.

The study, whose authenticity was confirmed to SPIEGEL ONLINE by sources in government circles, was not meant for publication. The document is said to be in draft stage and to consist solely of scientific opinion, which has not yet been edited by the Defense Ministry and other government bodies.

... Part 2: A Litany of Market Failures

According to the German report, there was "some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later." The Bundeswehr prediction is consistent with those of well-known scientists who assume global oil production has either already passed its peak or will do so this year.

Market Failures and International Chain Reactions

The political and economic impacts of peak oil on Germany have now been studied for the first time in depth. The crude oil expert Steffen Bukold has evaluated and summarized the findings of the Bundeswehr study. Here is an overview of the central points:

• Oil will determine power ...

• Increasing importance of oil exporters ...
• Market failures ...
• Relapse into planned economy ...
• Global chain reaction ...
• Crisis of political legitimacy: The Bundeswehr study also raises fears for the survival of democracy itself. Parts of the population could comprehend the upheaval trigged by peak oil "as a general systemic crisis." This would create "room for ideological and extremist alternatives to existing forms of government." Fragmentation of the affected population is likely and could "in extreme cases lead to open conflict."

The scenarios outlined by the Bundeswehr Transformation Center are drastic. Even more explosive, politically, are recommendations to the government that the energy experts have put forward based on these scenarios. They argue that "states dependent on oil imports" will be forced to "show more pragmatism toward oil-producing states in their foreign policy." Political priorities will have to be somewhat subordinated, they claim, to the overriding concern of securing energy supplies.

For example: Germany would have to be more flexible in relation toward Russia's foreign policy objectives. ...

[Excerpts from the Spiegel article available online]

Update (Sept 1). Translations of TOC and lead paragraphs

Normk at The Oil Drum has translated the Table of Contents and the lead paragraphs (in a TOD discussion):

1. Introduction
2. The Importance of Oil
2.1. Oil as a Determinant of Globalization
2.2. Aspects of German Energy Security
3. Possible Developments after Global Peak Oil

3.1. General Peak-Oil-Induced Causal Relationships
3.1.1. Oil becomes a crucial factor of (re-)shaping international relations
The share of globally and freely accessible oil traded on markets will decline in favor of oil traded through binational contracts. Economic strength, military might, or nuclear weapons turn into a paramount instrument of power projection and a determining factor of new dependency relationships in international relations.
- Appreciation of producing nations within the international system
- Conditioning of supply relationships
- Volatility and loss of trust
- Supply diversification becomes more difficult
- Geopolitical turnover and new strategic alliances
- Undermining of value-oriented foreign policy
- Shifts of power in international organizations towards big emerging countries

3.1.2. The development of additional and alternative energy sources creates new security challenges
The decline of conventional oil reserves under the conditions of Peak Oil causes alternative energy sources to gain importance. That includes as yet to be developed unconventional oil and gas resources, coal and nuclear, as well as renewables. The use of those resources implies new security policy challenges.
- Contest for oil sources in disputed regions or international waters
- Natural gas as an extension of the oil age
- Expansion of nuclear power and increased proliferation
- Growing global production of fuels competes with food production for arable land
- Striving for energy independence makes infrastructures more critical and leads to large "energy regions"

3.1.3. The roles of states and private economic actors shift
Private actors traditionally play a central -but as yet purely economic- part in oil exploration and extraction. After realizing Peak Oil, states will push even more for security of oil supply while companies are confronted with situations where taking over functions traditionally fulfilled by states seems sensible or essential. Three areas stand out: Contest for drilling licenses, organizing security, and the protection of oil infrastructures.

3.1.4. The transition to a post-fossil society leads to economic and political crises
Modern economies have developed on the basis of cheap fossil resources, esp. oil. Individual and commercial transport are oil-based. Highly increased oil prices will have massive effects in both areas. The security-political implications are a fragmentation of societies that are most affected and economic and political systemic crises.
- Curtailments in individual and commercial transport
- Food security threatened
- Transformation of economic structures
- More regulation, less market
- Society loses trust

3.1.5. Interventions become more selective - actors are overstrained
Peak oil will pose to most states enormous economic, political, and financial challenges. The massive burden to economic, political, and financial systems and fuel shortages will lead to a curtailment of options for transporting large goods over long distances. Therefore interventions of all kinds will become more expensive and difficult for all relevant actors while the number and intensity of internal problems will decrease attention and available resources. Actors (NGOs included) can operate only selectively.
- Focusing on one's own problems

3.2. Systemic risk whilst crossing the "Tipping Point"
- Total Liquids production declines
- Short term, the world economy contracts proportionally to the decline of oil supply
- Medium term, the global economic system and every market economy collapse (see also bullet point 4 of my initial post)

4. Challenges for Germany
4.1. Danger of new dependency relationships for Germany
Gas perpetuates the security challenges of Peak Oil and becomes an important "second political currency".

4.2. Heightened Focus of politics on supply relationships
Concentration of remaning reserves in the "strategic ellipsis" and difficult diversification cause (a) an appreciation of producing countries in the region and (b) an increased interference of outside powers to ensure their interests and resources. There is a danger that producing nations will exploit their position of power, form alliances along ideological fault lines and aggressively pursue their goals.

4.3. Foreign policy becomes more pragmatic
Peak Oil forces the primacy of securing energy and increases pragmatism and politics of interest in international relations to the disadvantage of value-oriented foreign policy.

4.4. Shaping power and importance of western industrial nations declines
New partnerships between big emerging economies and resource-rich developing countries will be forged. There will be more catering to the 'clientele' within international organizations. The position of western industrial countries is weakened.

4.5. Helping to stabilize fragile producing nations
The multiple challenges of PO will weaken the performance of states. This will lead to more weak or failed states. Oil extraction&export however require a stable framework. If governments cannot guarantee stability, the probability that such functions (including use of force) are performed by third parties will increase. The relevant actors could be non-governmental, sub-governmental, or governmental. Consequences include a displacement of governmental structures or dominance by private and half-governmental actors but also foreign powers.

4.6. Potential for conflict in the Arctic grows
The ambiguity of the apportionment of arctic areas and their resources increases the conflict potential between neighboring countries, esp. when PO happens.

4.7. Proliferation of nuclear technology & materials
With the expected expansion of nuclear power under PO, the proliferation of nuclear technology and materials will increase. That will increase the number of real or potential nuclear powers. An increased risk of terrorist use of nuclear material or accidents.

4.8. Heightened potential for conflict of KRITIS (critical infrastructure)
Oil and gas infrastructures become more attractive as targets of violent conflict and political blackmail. Infrastructures for electrial energy become even more critical. The need for investing in direct and indirect protection measures will increase. Non-state actors will play an increasing role.

4.9. Large energy regions change alliance systems
Building out new energy regions will not only be a technical and ecomic challenge but will also be linked to security-political processes to ensure stable conditions in changing environment.

4.10. Peak oil for militaries
A massive reduction of mobility has huge implications for training, equipment and above all global abilitiy of armies to project and intervene. Short-term solutions will have to include alternative liquid fuels. In the medium/long-term armies will have to transform towards post-fossil mobilty alongside societies and economies.

4.11. Oil as a systemic risk
A fundamental problem of security-political challenges of PO is the systemic nature of scarce and expensive oil in a complex economic environment. The transmission channels of an oil price shock include very different, interdependent and partly essential infrastructures. Consequences are therefore not entirely predictable.

5. Conclusions
The two and a half page long conclusion deserves a post of its own.

Appendix FAQ
1. What is Peak Oil?
2. How do critics argue against Peak Oil?
3. What kind of resources are there?
4. What is the difference between conventionals and unconventionals?
5. What about new oil finds?
6. How do refineries work?
7. How does EROI influence the oil price?
8. Are there ways to deal with Peak Oil?