Oil Crisis

The Silent Oil Crisis

by James Howard

In this article we look at how just because developed economies are not suffering like they did during the 1970s that the oil crisis has not already begun. The final oil crisis has begun, silent to us, but dangerously there.

Adjusted to modern day prices, the historical record price for oil was $80 as a result of the second 1970’s oil crisis – a crisis brought about by political circumstances, not geological realities. The 25th August 2005 saw the price for a barrel of oil pass $68, just $12 from that high. Lessons from history suggest that high oil prices mean bad news for the economy, thus our jobs and way of life.

Yet analysts feared the worst when oil hit $30, then $40, then $50, and then $60. Somehow strong Western economies have shrugged these prices off and we are left asking whether anything has really changed for the major industrial economies so dependent on cheap oil? At present we do not seem to be in the same dire straits that the 1970’s oil crises brought upon the world.

Beginning of "The Great Decline"

So maybe everything is fine until that $100 barrel mark. People talk of an oil crisis, but surely, since we are waiting for the $100 barrel, there is nothing to worry about. Right? Wrong. Around the world, silent to us, the oil crisis has truly begun. They are at the beginning of what some are calling ‘The Great Decline’.

Just as rising sea levels threaten to flood low-lying lands unable to protect themselves, rising oil prices threaten countries with weak (low-lying) economies. Rising oil prices are a rising tide, and there are many examples to look at. The countries that will be first affected by rising oil prices are those with a more youthful oil-dependent economy or those that do not have the economic strength – either as a nation, or as individuals, to cope with it.

Philippines - oil prices having an impact on daily life

The oil crisis is getting particularly acute in The Philippines. Already, President Macapagal-Arroyo is talking of rationing oil if prices don’t fall and conservation efforts not made. Furthermore, there are calls for political unity across all parties, as well as demand for the public to take this problem seriously. "We cannot afford a divided nation amid this oil crisis. We have to unite to ensure and survive, and let not the people blame their leaders for not taking up the challenge", said presidential spokesman Ignacia Bunye on August 15th 2005. Unlike Indonesia though, there seems to be a wider acceptance that the oil price is market-driven. But the oil crisis is having an impact on daily life.

Employees have three rest days every week; supermarket workers are dismissed one hour earlier at night; streets are only coloured by neon lights after 9:00 p.m; and night golfing lovers have to temporarily quit their hobby. Gas stations are operating only 20 hours a day instead of 24. "To implement mandatory and voluntary measures for fuel demand restraint and efficient use of electricity will help combat adverse effects of relentless increase in world oil prices on the local economy", the DOE said in a statement. There are other measures proposed too, including fuel rationing, recycling waste oil, regulation of air-conditioning and regulation of motor vehicles to conserve fuel and relieve traffic congestion.

The potential for such a situation throughout the world is clearly expected by international agencies. On the 28th April 2005 the IEA launced a book called “Saving Oil In A Hurry” which is a “New analysis of measures that governments can use to “save oil in a hurry”. Measures suggested include telecommuting, car-pooling, transit use and “ecodriving” (fuel efficient driving styles), among other measures.

The stark example of North Korea

One of the starkest examples of the silent oil crisis is in North Korea, where there is a virtual news blackout. The news that does get out is incredibly worrying. This is a country that is totally isolated to the world and where the daily food rations are just 250 grams. These meagre rations are the simple sign of a country unable to feed itself due to a lack of fertiliser and farm machinery. Nor does North Korea have the fuel to run irrigation systems or power tractors. The population of North Korea was able to increase, boosted by energy and food imports from it’s Soviet allies during the Cold War. Now that support has gone, the carrying capacity of the land is below that of the population levels. As Edward Goldsmith wrote for the Global Warming Crisis Council:

“If three million people starved to death in North Korea in the last few years, it was partly because, as a result of the collapse of the Russian market which absorbed most of its exports, it could no longer afford to import the vast amount of oil on which its highly mechanised, Soviet inspired, agricultural system had become so totally dependent. Its ‘farmers’ had simply forgotten how to wield a hoe or push a wheelbarrow.”

An article in the Seoul Times called ‘Glimpses of a hermit nation’ paints a dire picture of a country deprived of energy, although its problems also come from choosing not to trade internationally.

A re-emerging energy crisis in Cuba

Cuba is often touted as the ‘flip-side’ to North Korea. Although not totally isolationist, the collapse of the Soviet Union left Cuba adrift with much reduced oil imports and in a fairly similar situation to North Korea. Nonetheless it has managed to find a way to get by on less and less oil – not without struggle. A report by CommunitySolution.org posited the country in a positive light, considering its resources. But an aging energy infrastructure has seen an energy crisis re-emerge in Cuba. Recent power outages have caused small protests and prompted comparisons to the early 1990s power crisis that resulted in the 1994 rafter crisis as thousands of Cuban refugees headed to South Florida’s shores. Billions of dollars are said to be needed for the power plants and oil to alleviate Cuba’s immediate energy problems.

There are many more countries with similar problems and there will be those who have never had the chance or will ever have the chance to fully industrialise or reach the levels of prosperity enjoyed by so many in economically developed nations. For the environment, this may be a good thing but there is no doubt that economic prosperity is one path to battling problems such as hunger. This is not to suggest that fossil fuels such as oil are a magic fix for all the world’s woes – to be dependent on something unsustainable is a mistake, especially when that mistake will ravage your climate and make surviving the great decline even harder.

What we have learned from the last 100 years is that having oil makes work easier and more profitable and enables a way of living otherwise impossible. Without oil, work becomes harder, less profitable and limits your options. The rising tide of oil poverty will drown country after country, until even the high lands become low lands.

Signs of an oil crisis in West

The signs of an oil crisis are already here in the UK, in Europe and also in the US, even if is still too inaudible to be heard as a serious warning by the general public. However, France's prime minister, Dominique de Villepin is already giving that very warning when he told a news conference on the 16th August 2005 that, “This crisis, we know, is likely to last. All the factors have come together for oil to remain expensive in the years and decades to come," he said. "Our refining capacity is saturated and cannot adequately cope with French demand."

This is a crisis because oil enables growth and growth is the aim of most individuals, businesses and nations. If the aim was not growth but sustainability, this would not be an oil crisis but an oil opportunity. As it stands, without increasing amounts of cheap oil, growth becomes ever more difficult to achieve. And not just growth but even more basic things such as providing food, warmth and water will become more of a challenge.

“Many of the truckers who distribute produce are charging higher prices or getting out of the business, making it harder for farmers to get their crops to wholesalers… Fertilizer manufacturers are also facing much higher domestic natural gas prices, driving the prices they charge higher”, a report in the NCTimes revealed. It is not much better in the UK. In April 2005, a story in The Herald revealed, “Farmers in Britain are beginning to feel the pinch. A decade ago, when the value of malting barley was close on £150 per tonne, haulage rates were a minor issue. However, with grain now selling for little more than £80 per tonne, the slice carved off by transport charges bites hard. The added factor in the farming equation is that the price of fertiliser has shot up by at least 30%, while the availability has gone down dramatically.” The plastics industry in the UK is also under threat by rising energy costs, according to Plastics & Rubber Weekly. If you listen in the right places, you will see the oil crisis is maybe not so silent.

As person after person, business after business and country after country drops out of the scramble for oil, those still in the game will be able to continue and feel that things are alright. We must take warning now because even though it may be The Philippines today, in 30 years, with North Sea oil depleted and Britain struggling with huge levels of debt, it could be us.

  Reaction

The formerly state owned oil Company Petron should be re-Filipinised to form the core of the reconstituted Department of Energy that would be tasked with comprehensive planning to diversify energy sources, bring down prices, and manage energy consumption to mitigate climate change.

The price of fuel has reached unheard of heights. The price of crude went above US$139 a barrel recently, before easing. At the pump, the price of unleaded gasoline in the Philippines has gone beyond P56 and diesel above P49.

The formerly state owned oil Company Petron should be re-Filipinised to form the core of the reconstituted Department of Energy that would be tasked with comprehensive planning to diversify energy sources, bring down prices, and manage energy consumption to mitigate climate change.

The price of fuel has reached unheard of heights. The price of crude went above US$139 a barrel recently, before easing. At the pump, the price of unleaded gasoline in the Philippines has gone beyond P56 and diesel above P49. We are now consuming over 120 million barrels a year, and 90% of that is sourced outside the country.

What is causing this unprecedented rise in global oil prices? The key factor seems to be that the demand for oil is rising much faster than its supply, and this is due fundamentally to the fact that the few old oilfields on which the world relies for most of its oil are being depleted and no new fields have been discovered that can match their production and reserves.

Peak oil, which was viewed just a few years ago as an outlandish theory, is now being treated as fact.

The second factor pushing up prices is the rush to buy oil futures contracts, a development that is partly determined by the fear that available oil will increasingly become scarce, partly by the desire of investors to park their wealth in oil instead of the declining dollar. 

Because of this many daily activities will be affected: transportation , price increase and all things. creating a domino reaction within the society .