Pity the poor petro-states. Once so wealthy from oil sales that they could finance wars, mega-projects, and domestic social peace simultaneously, some of them are now beset by internal strife or are on the brink of collapse as oil prices remain at ruinously low levels. Unlike other countries, which largely finance their governments through taxation, petro-states rely on their oil and natural gas revenues. Russia, for example, obtains about 50% of government income that way; Nigeria, 60%; and Saudi Arabia, a whopping 90%. When oil was selling at $100 per barrel or above, as was the case until 2014, these countries could finance lavish government projects and social welfare operations, ensuring widespread popular support.  Now, with oil below $50 and likely to persist at that level, they find themselves curbing public spending and fending off rising domestic discontent or even incipient revolt.

At the peak of their glory, the petro-states played an outsized role in world affairs.  The members of OPEC, the Organization of the Petroleum Exporting Countries, earned an estimated $821 billion from oil exports in 2013 alone. Flush with cash, they were able to exert influence over other countries through a wide variety of aid and patronage operations. Venezuela, for example, sought to counter U.S. influence in Latin America via its Bolivarian Alliance for the Peoples of Our America (ALBA), a cooperative network of mostly leftist governments. Saudi Arabia spread its influence throughout the Islamic world in part by financing the efforts of its ultra-conservative Wahhabi clergy to establish madrassas (religious academies) throughout the Islamic world. Russia, under Vladimir Putin, used its prodigious oil wealth to rebuild and refurbish its military, which had largely disintegrated following the collapse of the Soviet Union. Lesser members of the petro-state club like Angola, Azerbaijan, and Kazakhstan became accustomed to regular fawning visits from the presidents and prime ministers of major oil-importing countries.

That, of course, was then, and this is now. While these countries still matter, what worries these presidents and prime ministers now is the growing likelihood of civil violence or even state collapse. Take, for example, Venezuela, long an ardent foe of U.S. policy in Latin America, but today the potential site of a future bloody civil war between supporters and opponents of the current government. Similar kinds of internal strife and civil disorder are likely in oil-producing states like Algeria and Nigeria, where the potential for the further growth of terrorist violence amid chaos is always high.

Some petro-states like Venezuela and Iraq already appear to be edging up to the brink of collapse. Others like Russia and Saudi Arabia will be forced to reorient their economies if they hope to avoid such future outcomes. Whatever their degree of risk, all of them are already experiencing economic hardship, leaving their leaders under growing pressure to somehow alter course in the bleakest of circumstances — or face the consequences.

A Busted Business Model

Petro-states are different from other countries because the fates of their governing institutions are so deeply woven into the boom-and-bust cycles of the international petroleum economy. The challenges they face are only compounded by the unnaturally close ties between their political leaderships and senior officials of their state-owned or state-controlled oil and natural gas industries. Historically, their rulers have placed close allies or even family members in key industry positions, ensuring continuing government control and in many cases personal enrichment as well. In Russia, for example, the management of Gazprom, the state-controlled natural gas company, and Rosneft, the state-owned oil company, is almost indistinguishable from the senior leadership in the Kremlin, with both groups answering to President Putin. A similar pattern holds for Venezuela, where the government keeps the state-owned company, Petróleos de Venezuela, S.A. (PdVSA), on a tight leash, and in Saudi Arabia, where the royal family oversees the operations of the state-owned Saudi Aramco.

In 2016, one thing is finally clear, however: the business model for these corporatized states is busted. The most basic assumption behind their operation — that global oil demand will continue to outpace world petroleum supplies and ensure high prices into the foreseeable future — no longer holds.  Instead, in what for any petro-state is a nightmarish, upside-down version of that model, supply, not demand, is forging ahead, leaving the market flooded with fossil fuels.

Most analysts, including those at the International Monetary Fund (IMF), now believe that increases in energy efficiency, the spread of affordable alternative energy sources (especially wind and solar), slowing worldwide economic growth, and concern over climate change will continue to put a damper on fossil fuel demand in the years ahead.  Meanwhile, the oil industry — now equipped with fracking technology and other advanced extractive techniques — will continue to boost supplies. It’s a formula for keeping prices low. In fact, a growing number of analysts are convinced that world oil demand will in the not-so-distant future reach a peak and begin a long-term decline, ensuring that large reserves of petroleum will be left in the ground. For the petro-states, all of this means persistent pain unless they can find a new business model that is somehow predicated on a permanent low-oil-price environment.

These states vary in both their willingness and ability to respond to this new reality effectively. Some are too deeply committed to their existing business model (and its associated leadership system) to consider significant changes; others, increasingly aware of the need to do something, find almost insuperable structural roadblocks in the way; and a third group, recognizing the desperate need for change, is attempting a total economic overhaul of its oil economies. In recent weeks, examples of all three types – Venezuela for the first, Nigeria the second, and Saudi Arabia the third — have surfaced in the news.

Venezuela: A Nation on the Brink

Venezuela claims the world’s largest proven reserves of petroleum, an estimated 298 billion barrels of oil. In past decades, the exploitation of this vast fossil fuel patrimony has ensured incredible wealth for foreign companies and Venezuelan elites alike. After assuming the presidency in 1999, however, Hugo Chávez sought to channel the bulk of this wealth to Venezuela’s poor and working classes by forcing foreign firms to partner with the state-owned oil firm PdVSA and redirecting that company’s profits to government spending programs. Billions of dollars were funneled into state-directed “missions” to the poor, lifting millions of Venezuelans out of poverty. In 2002, when the company’s long-serving managers rebelled against these moves, Chávez simply replaced them with his own party loyalists and the diversion of funds continued.

In the wake of the ousting of that original management team, the country’s oil production began to decline.  With prices running at or above $100 per barrel, this initially seemed to make little difference as money continued to pour into government coffers and those missions to the poor kept right on going. What Chavez didn’t do, however, was create the national equivalent of a rainy-day fund.  Little of the oil money was channeled into a sovereign wealth fund for more problematic moments, nor was any invested in other kinds of industries that might in time have generated streams of non-fossil-fuel income for the government.

As a result, when prices began to drop in the fall of 2014, Chavez’s presidential successor, Nicolás Maduro, faced a triple calamity: diminished revenues for social services, scant savings to draw upon, and no alternative sources of income. Not surprisingly, as a new impoverishment spread, many former Chavistas lost faith in the regime and, in last December’s parliamentary elections, voted for emboldened opposition candidates.

Today, Venezuela is a nation living under an officially declared “state of emergency,” politically riven, experiencing food riots and other violence, and possibly on the brink of collapse. According to the IMF, the economy contracted by 5.7% in 2015 and is expected to diminish by another 8% this year — more, that is, than any other country on the planet. Inflation is out of control, unemployment and crime are soaring, and what little money Venezuela had in its rainy-day account has largely been spent. Only China has been willing to lend it money to pay off its debts. If Beijing chooses to hold back when the next payments come due this fall, the country could face default. Opposition leaders in the National Assembly seek to oust Maduro and move ahead with various reforms, but the government is using its control of the courts to block such efforts, and the nation remains in a state of paralysis.

Nigeria: Continuing Disorder

Nigeria possesses the largest oil and natural gas reserves in sub-Saharan Africa. The exploitation of those reserves has long proved immensely profitable for foreign companies like Royal Dutch Shell and Chevron and also for well-connected Nigerian elites.  Very little of this wealth, however, has trickled down to those living in the Niger Delta region in the south of the country where most of the oil and gas is produced. Opposition to the central government in Abuja, the capital, to which the oil income flows, has long been strong in the Delta, leading to periodic outbursts of violence. Successive federal administrations have promised a more equitable allocation of oil revenues, but a promise this has remained.

From 2006 to 2009, Nigeria was wracked by an insurgency spearheaded by the Movement for the Emancipation of the Niger Delta, a militant group seeking to redirect oil revenues to the country’s impoverished southern states.  In 2009, when President Umaru Musa Yar’Adua offered the militants an amnesty and monthly cash payments, the insurgency died down.  His successor, Goodluck Jonathan, a southerner, promised to respect the amnesty and channel more funds to the region.

For a while, high oil prices enabled Jonathan to make good on some of his promises, even as entrenched elites in Abuja continued to pocket a substantial percentage of the country’s petroleum income. When prices began to plummet, however, he was confronted with mounting challenges.  Pervasive corruption turned people against the government, feeding recruits into Boko Haram, the terror movement then growing in the country’s northern reaches; money intended for soldiers in the Nigerian army disappeared into the pockets of military elites, subverting efforts to fight the insurgents. In national elections held a year ago, Muhammadu Buhari, a former general who vowed to crack down on corruption, rescue the economy, and defeat Boko Haram, took the presidency from Jonathan.

Since assuming office, Buhari has demonstrated a grasp of Nigeria’s structural weaknesses, especially its overwhelming dependency on oil monies, along with a determination to overcome them. As promised, he has launched a serious crackdown on the sort of corruption that is a commonplace feature of petro-states, firing officials accused of blatant thievery.  At the same time, he has stepped up military pressure on Boko Haram, for the first time putting a crimp in that group’s brutal activities. Crucially, he has announced plans to diversify the economy, placing more emphasis on agriculture and non-fossil-fuel-related industries, which might, if pursued seriously, help diminish Nigeria’s increasingly disastrous reliance on oil.

In the cold light of day, however, the country still needs those oil revenues for the lion’s share of its income, which means that in the current low-price environment it has ever less money to fight Boko Haram, pay for social services, or pursue alternative investment schemes. In addition, Buhari has been accused of disproportionately targeting southerners in his fight against corruption, sparking not just fresh discontent in the Delta region but the rise of a new militant group — the Niger Delta Avengers — that poses a threat to oil production. On May 4th, the Avengers attacked an offshore oil platform operated by Chevron and the Nigerian National Petroleum Corporation, forcing the companies to shut down production of about 90,000 barrels per day. Add that to other insurgent attacks on the country’s oil infrastructure and the Nigerian government is expected to lose $1 billion in May alone.  If repairs are not completed on time, it may lose an equal amount in June.  It remains a nation on edge, in danger of devastating impoverishment, and with few genuine alternatives available.

Saudi Arabia: Seeking a New Vision

With the world’s second largest reserves of oil, Saudi Arabia is also the planet’s leading producer, pumping out a staggering 10.2 million barrels daily. Originally, those massive energy reserves were owned by a consortium of American companies operating under the umbrella of the Arabian-American Oil Company (Aramco). In the 1970s, however, Aramco was nationalized and is now owned by the Saudi state — which is to say, the Saudi monarchy. Today, it is the world’s most valuable company, worth by some estimates as much as $10 trillion (10 times more than Apple), and so a source of almost unimaginable wealth for the Saudi royal family.

For decades, the country’s leadership pursued a consistent political-economic business plan: sell as much oil as possible and use the proceeds to enrich the numerous princes and princesses of the realm; provide lavish social benefits to the rest of the population, thereby averting popular unrest of the “Arab Spring” variety; finance the ultra-conservative Wahhabi clergy so as to ensure its loyalty to the regime; finance like-minded states in the region; and put aside money for those rainy-day periods of low oil prices.

Saudi leaders have recently come to recognize that this plan is no longer sustainable. In 2016, the Saudi budget has, for the first time in recent memory, moved into deficit territory and the monarchy has had to cut back on both its usual subsidies to and social programs for its people. Unlike the Venezuelans or the Nigerians, the Saudi royals socked away enough money in the country’s sovereign wealth fund to cover deficit spending for at least a couple of years. It is now, however, burning through those funds at a prodigious rate, in part to finance a brutal and futile war in Yemen. At some point, it will have to sharply curtail government spending. Given the youthfulness of the Saudi population — 70% of its citizens are under 30 — and its long dependence on government handouts, such moves could, in the view of many analysts, lead to widespread civil unrest.

Historically, Saudi leaders have been slow to initiate change. But recently, the royal family has defied expectations, taking radical steps to prepare the country for a transition to what’s being termed a post-petroleum economy. On April 25th, the powerful Deputy Crown Prince, Mohammed bin Salman, unveiled “Saudi Vision 2030,” a somewhat hazy blueprint for the kingdom’s economic diversification and modernization. Prince Mohammed also indicated that the country will soon begin to offer public shares in Saudi Aramco, with the intention of raising massive funds to invest in and create non-oil-related Saudi industries and revenue streams. On May 7th, the monarchy also abruptly dismissed its long-serving oil minister, Ali al-Naimi, and replaced him with the head of Saudi Aramco, Khalid al-Falih, a figure deemed more subservient to Prince Mohammed. Falih’s job title was also changed to minister of energy, industry, and mineral resources, which was (so the experts speculated) a signal from the monarchy of its determination to move beyond exclusive reliance on oil as a source of income.

This is all so unprecedented that there is no way of predicting whether the Saudi royals are actually capable of bringing anything like Saudi Vision 2030 to fruition, no less moving away in a serious fashion from its reliance on oil. Many obstacles remain, including the possibility that jealous royals will push Prince Mohammed (and his vision) aside when his father, King Salman, now 80, passes from the scene. (There are regular rumors that some members of the royal family resent the meteoric rise of the 31-year-old prince.) Nevertheless, his dramatic statements about the need to diversify the kingdom’s economy do show that even Saudi Arabia — the petro-state par excellence — now recognizes that some kind of new identity is now a necessity.

The Stakes for Us All

You may not live in a petro-state, but that doesn’t mean you don’t have a stake in the evolution of this unique political life form. From at least the “oil shock” of 1973, when the Arab OPEC members announced an “oil boycott” against the U.S. for its involvement in the Yom Kippur War, such countries have played an outsized role on the world stage, distorting international relations, and — in the Greater Middle East — involving themselves (and their financial resources) in one conflict after another from the Iran-Iraq War of 1980-1988 to the wars in Yemen and Syria today.

Their fervent support for and financing of favored causes — whether it be Wahhabism and associated jihadist groups (Saudi Arabia), anti-Westernism (Russia), or the survival of the Assad regime in Syria (Iran) — has provoked widespread disorder and misery. It will hardly be a tragedy if a lack of funds forces such states to pull back from efforts of this sort. But given the centrality of fossil fuels to our world for the last century or more, the chaos that could ensue in the oil heartlands of the planet from low oil prices and high supply is likely to create unpredictable new nightmares of its own.

And the greatest nightmares of all lurk not in any of this but in the inability of these states and those they supply to liberate themselves from reliance on fossil fuels fast enough.  Looking into the future, the demise of petro-states as we’ve known them could have a profound impact on the struggle to avert catastrophic climate change. Although these states are not primarily responsible for the actual combustion of fossil fuels — that’s something we in the oil-importing countries must take responsibility for — their pivotal role in fueling the global petroleum economy has made them largely resistant to international efforts to curb emissions of carbon dioxide. As they try to repair their busted business model or collapse under the weight of its failures, we can only hope that the path they follow will entail significantly less dependence on oil exports as well as a determination to speed up the conclusion of the fossil fuel era and so diminish its legacy of climate disaster.

Copyright 2016 Michael T. Klare

The Desperate Plight of Petro-States

Sunday, April 17th was the designated moment.  The world’s leading oil producers were expected to bring fresh discipline to the chaotic petroleum market and spark a return to high prices. Meeting in Doha, the glittering capital of petroleum-rich Qatar, the oil ministers of the Organization of the Petroleum Exporting Countries (OPEC), along with such key non-OPEC producers as Russia and Mexico, were scheduled to ratify a draft agreement obliging them to freeze their oil output at current levels. In anticipation of such a deal, oil prices had begun to creep inexorably upward, from $30 per barrel in mid-January to $43 on the eve of the gathering. But far from restoring the old oil order, the meeting ended in discord, driving prices down again and revealing deep cracks in the ranks of global energy producers.

It is hard to overstate the significance of the Doha debacle. At the very least, it will perpetuate the low oil prices that have plagued the industry for the past two years, forcing smaller firms into bankruptcy and erasing hundreds of billions of dollars of investments in new production capacity. It may also have obliterated any future prospects for cooperation between OPEC and non-OPEC producers in regulating the market. Most of all, however, it demonstrated that the petroleum-fueled world we’ve known these last decades — with oil demand always thrusting ahead of supply, ensuring steady profits for all major producers — is no more.  Replacing it is an anemic, possibly even declining, demand for oil that is likely to force suppliers to fight one another for ever-diminishing market shares.

The Road to Doha

Before the Doha gathering, the leaders of the major producing countries expressed confidence that a production freeze would finally halt the devastating slump in oil prices that began in mid-2014. Most of them are heavily dependent on petroleum exports to finance their governments and keep restiveness among their populaces at bay.  Both Russia and Venezuela, for instance, rely on energy exports for approximately 50% of government income, while for Nigeria it’s more like 75%.  So the plunge in prices had already cut deep into government spending around the world, causing civil unrest and even in some cases political turmoil.

No one expected the April 17th meeting to result in an immediate, dramatic price upturn, but everyone hoped that it would lay the foundation for a steady rise in the coming months. The leaders of these countries were well aware of one thing: to achieve such progress, unity was crucial. Otherwise they were not likely to overcome the various factors that had caused the price collapse in the first place.  Some of these were structural and embedded deep in the way the industry had been organized; some were the product of their own feckless responses to the crisis.

On the structural side, global demand for energy had, in recent years, ceased to rise quickly enough to soak up all the crude oil pouring onto the market, thanks in part to new supplies from Iraq and especially from the expanding shale fields of the United States. This oversupply triggered the initial 2014 price drop when Brent crude — the international benchmark blend — went from a high of $115 on June 19th to $77 on November 26th, the day before a fateful OPEC meeting in Vienna. The next day, OPEC members, led by Saudi Arabia, failed to agree on either production cuts or a freeze, and the price of oil went into freefall.

The failure of that November meeting has been widely attributed to the Saudis’ desire to kill off new output elsewhere — especially shale production in the United States — and to restore their historic dominance of the global oil market. Many analysts were also convinced that Riyadh was seeking to punish regional rivals Iran and Russia for their support of the Assad regime in Syria (which the Saudis seek to topple).

The rejection, in other words, was meant to fulfill two tasks at the same time: blunt or wipe out the challenge posed by North American shale producers and undermine two economically shaky energy powers that opposed Saudi goals in the Middle East by depriving them of much needed oil revenues. Because Saudi Arabia could produce oil so much more cheaply than other countries — for as little as $3 per barrel — and because it could draw upon hundreds of billions of dollars in sovereign wealth funds to meet any budget shortfalls of its own, its leaders believed it more capable of weathering any price downturn than its rivals. Today, however, that rosy prediction is looking grimmer as the Saudi royals begin to feel the pinch of low oil prices, and find themselves cutting back on the benefits they had been passing on to an ever-growing, potentially restive population while still financing a costly, inconclusive, and increasingly disastrous war in Yemen.

Many energy analysts became convinced that Doha would prove the decisive moment when Riyadh would finally be amenable to a production freeze.  Just days before the conference, participants expressed growing confidence that such a plan would indeed be adopted. After all, preliminary negotiations between Russia, Venezuela, Qatar, and Saudi Arabia had produced a draft document that most participants assumed was essentially ready for signature. The only sticking point: the nature of Iran’s participation.

The Iranians were, in fact, agreeable to such a freeze, but only after they were allowed to raise their relatively modest daily output to levels achieved in 2012 before the West imposed sanctions in an effort to force Tehran to agree to dismantle its nuclear enrichment program.  Now that those sanctions were, in fact, being lifted as a result of the recently concluded nuclear deal, Tehran was determined to restore the status quo ante. On this, the Saudis balked, having no wish to see their arch-rival obtain added oil revenues.  Still, most observers assumed that, in the end, Riyadh would agree to a formula allowing Iran some increase before a freeze. “There are positive indications an agreement will be reached during this meeting… an initial agreement on freezing production,” said Nawal Al-Fuzaia, Kuwait’s OPEC representative, echoing the views of other Doha participants.

But then something happened. According to people familiar with the sequence of events, Saudi Arabia’s Deputy Crown Prince and key oil strategist, Mohammed bin Salman, called the Saudi delegation in Doha at 3:00 a.m. on April 17th and instructed them to spurn a deal that provided leeway of any sort for Iran. When the Iranians — who chose not to attend the meeting — signaled that they had no intention of freezing their output to satisfy their rivals, the Saudis rejected the draft agreement it had helped negotiate and the assembly ended in disarray.

Geopolitics to the Fore

Most analysts have since suggested that the Saudi royals simply considered punishing Iran more important than raising oil prices.  No matter the cost to them, in other words, they could not bring themselves to help Iran pursue its geopolitical objectives, including giving yet more support to Shiite forces in Iraq, Syria, Yemen, and Lebanon.  Already feeling pressured by Tehran and ever less confident of Washington’s support, they were ready to use any means available to weaken the Iranians, whatever the danger to themselves.

“The failure to reach an agreement in Doha is a reminder that Saudi Arabia is in no mood to do Iran any favors right now and that their ongoing geopolitical conflict cannot be discounted as an element of the current Saudi oil policy,” said Jason Bordoff of the Center on Global Energy Policy at Columbia University.

Many analysts also pointed to the rising influence of Deputy Crown Prince Mohammed bin Salman, entrusted with near-total control of the economy and the military by his aging father, King Salman. As Minister of Defense, the prince has spearheaded the Saudi drive to counter the Iranians in a regional struggle for dominance. Most significantly, he is the main force behind Saudi Arabia’s ongoing intervention in Yemen, aimed at defeating the Houthi rebels, a largely Shia group with loose ties to Iran, and restoring deposed former president Abd Rabbuh Mansur Hadi. After a year of relentless U.S.-backed airstrikes (including the use of cluster bombs), the Saudi intervention has, in fact, failed to achieve its intended objectives, though it has produced thousands of civilian casualties, provoking fierce condemnation from U.N. officials, and created space for the rise of al-Qaeda in the Arabian Peninsula. Nevertheless, the prince seems determined to keep the conflict going and to counter Iranian influence across the region.

For Prince Mohammed, the oil market has evidently become just another arena for this ongoing struggle. “Under his guidance,” the Financial Times noted in April, “Saudi Arabia’s oil policy appears to be less driven by the price of crude than global politics, particularly Riyadh’s bitter rivalry with post-sanctions Tehran.” This seems to have been the backstory for Riyadh’s last-minute decision to scuttle the talks in Doha. On April 16th, for instance, Prince Mohammed couldn’t have been blunter to Bloomberg, even if he didn’t mention the Iranians by name: “If all major producers don’t freeze production, we will not freeze production.”

With the proposed agreement in tatters, Saudi Arabia is now expected to boost its own output, ensuring that prices will remain bargain-basement low and so deprive Iran of any windfall from its expected increase in exports. The kingdom, Prince Mohammed told Bloomberg, was prepared to immediately raise production from its current 10.2 million barrels per day to 11.5 million barrels and could add another million barrels “if we wanted to” in the next six to nine months. With Iranian and Iraqi oil heading for market in larger quantities, that’s the definition of oversupply.  It would certainly ensure Saudi Arabia’s continued dominance of the market, but it might also wound the kingdom in a major way, if not fatally.

A New Global Reality

No doubt geopolitics played a significant role in the Saudi decision, but that’s hardly the whole story. Overshadowing discussions about a possible production freeze was a new fact of life for the oil industry: the past would be no predictor of the future when it came to global oil demand.  Whatever the Saudis think of the Iranians or vice versa, their industry is being fundamentally transformed, altering relationships among the major producers and eroding their inclination to cooperate.

Until very recently, it was assumed that the demand for oil would continue to expand indefinitely, creating space for multiple producers to enter the market, and for ones already in it to increase their output. Even when supply outran demand and drove prices down, as has periodically occurred, producers could always take solace in the knowledge that, as in the past, demand would eventually rebound, jacking prices up again. Under such circumstances and at such a moment, it was just good sense for individual producers to cooperate in lowering output, knowing that everyone would benefit sooner or later from the inevitable price increase.

But what happens if confidence in the eventual resurgence of demand begins to wither? Then the incentives to cooperate begin to evaporate, too, and it’s every producer for itself in a mad scramble to protect market share. This new reality — a world in which “peak oil demand,” rather than “peak oil,” will shape the consciousness of major players — is what the Doha catastrophe foreshadowed.

At the beginning of this century, many energy analysts were convinced that we were at the edge of the arrival of “peak oil”; a peak, that is, in the output of petroleum in which planetary reserves would be exhausted long before the demand for oil disappeared, triggering a global economic crisis. As a result of advances in drilling technology, however, the supply of oil has continued to grow, while demand has unexpectedly begun to stall.  This can be traced both to slowing economic growth globally and to an accelerating “green revolution” in which the planet will be transitioning to non-carbon fuel sources. With most nations now committed to measures aimed at reducing emissions of greenhouse gases under the just-signed Paris climate accord, the demand for oil is likely to experience significant declines in the years ahead. In other words, global oil demand will peak long before supplies begin to run low, creating a monumental challenge for the oil-producing countries.

This is no theoretical construct.  It’s reality itself.  Net consumption of oil in the advanced industrialized nations has already dropped from 50 million barrels per day in 2005 to 45 million barrels in 2014. Further declines are in store as strict fuel efficiency standards for the production of new vehicles and other climate-related measures take effect, the price of solar and wind power continues to fall, and other alternative energy sources come on line. While the demand for oil does continue to rise in the developing world, even there it’s not climbing at rates previously taken for granted. With such countries also beginning to impose tougher constraints on carbon emissions, global consumption is expected to reach a peak and begin an inexorable decline. According to experts Thijs Van de Graaf and Aviel Verbruggen, overall world peak demand could be reached as early as 2020.

In such a world, high-cost oil producers will be driven out of the market and the advantage — such as it is — will lie with the lowest-cost ones. Countries that depend on petroleum exports for a large share of their revenues will come under increasing pressure to move away from excessive reliance on oil. This may have been another consideration in the Saudi decision at Doha. In the months leading up to the April meeting, senior Saudi officials dropped hints that they were beginning to plan for a post-petroleum era and that Deputy Crown Prince bin Salman would play a key role in overseeing the transition.

On April 1st, the prince himself indicated that steps were underway to begin this process. As part of the effort, he announced, he was planning an initial public offering of shares in state-owned Saudi Aramco, the world’s number one oil producer, and would transfer the proceeds, an estimated $2 trillion, to its Public Investment Fund (PIF). “IPOing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil,” the prince pointed out. “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”

For a country that more than any other has rested its claim to wealth and power on the production and sale of petroleum, this is a revolutionary statement. If Saudi Arabia says it is ready to begin a move away from reliance on petroleum, we are indeed entering a new world in which, among other things, the titans of oil production will no longer hold sway over our lives as they have in the past.

This, in fact, appears to be the outlook adopted by Prince Mohammed in the wake of the Doha debacle.  In announcing the kingdom’s new economic blueprint on April 25th, he vowed to liberate the country from its “addiction” to oil.”  This will not, of course, be easy to achieve, given the kingdom’s heavy reliance on oil revenues and lack of plausible alternatives.  The 30-year-old prince could also face opposition from within the royal family to his audacious moves (as well as his blundering ones in Yemen and possibly elsewhere).  Whatever the fate of the Saudi royals, however, if predictions of a future peak in world oil demand prove accurate, the debacle in Doha will be seen as marking the beginning of the end of the old oil order.

Copyright 2016 Michael T. Klare

Debacle at Doha

Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.

The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity.  The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations.

Understandably enough, the stunning increase in North American oil production in the past few years simply wasn’t on their radar. According to the Energy Information Administration (EIA) of the Department of Energy, U.S. crude output rose from 5.5 million barrels per day in 2010 to 9.2 million barrels as 2016 began, an increase of 3.7 million barrels per day in what can only be considered the relative blink of an eye. Similarly unexpected was the success of Canadian producers in extracting oil (in the form of bitumen, a semi-solid petroleum substance) from the tar sands of Alberta. Today, the notion that oil is becoming scarce has all but vanished, and so have the benefits of a new era of petroleum plenty being touted, until recently, by energy analysts and oil company executives.

“The picture in terms of resources in the ground is a good one,” Bob Dudley, the chief executive officer of oil giant BP, typically exclaimed in January 2014.  “It’s very different [from] past concerns about supply peaking.  The theory of peak oil seems to have, well, peaked.”

The Arrival of a New Energy Triumphalism

With the advent of North American energy abundance in 2012, petroleum enthusiasts began to promote the idea of a “new American industrial renaissance” based on accelerated shale oil and gas production and the development of related petrochemical enterprises.  Combine such a vision with diminished fears about reliance on imported oil, especially from the Middle East, and the United States suddenly had — so the enthusiasts of the moment asserted — a host of geopolitical advantages and fresh life as the planet’s sole superpower.

“The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere,” oil industry adviser Daniel Yergin proclaimed in the Washington Post.  “The new energy axis runs from Alberta, Canada, down through [the shale fields of] North Dakota and South Texas… to huge offshore oil deposits found near Brazil.”  All of this, he asserted, “points to a major geopolitical shift,” leaving the United States advantageously positioned in relation to any of its international rivals.

If the blindness of so much of this is beginning to sound a little familiar, the reason is simple enough.  Just as the peak oil theorists failed to foresee crucial technological breakthroughs in the energy world and how they would affect fossil fuel production, the industry and its boosters failed to anticipate the impact of a gusher of additional oil and gas on energy prices.  And just as the introduction of fracking made peak oil theory irrelevant, so oil and gas abundance — and the accompanying plunge of prices to rock-bottom levels — shattered the prospects for a U.S. industrial renaissance based on accelerated energy production.

As recently as June 2014, Brent crude, the international benchmark blend, was selling at $114 per barrel.  As 2015 began, it had plunged to $55 per barrel.  By 2016, it was at $36 and still heading down.  The fallout from this precipitous descent has been nothing short of disastrous for the global oil industry: many smaller companies have already filed for bankruptcy; larger firms have watched their profits plummet; whole countries like Venezuela, deeply dependent on oil sales, seem to be heading for receivership; and an estimated 250,000 oil workers have lost their jobs globally (50,000 in Texas alone).

In addition, some major oil-producing areas are being shut down or ruled out as likely future prospects for exploration and exploitation.  The British section of the North Sea, for example, is projected to lose as many as 150 of its approximately 300 oil and gas drilling platforms over the next decade, including those in the Brent field, the once-prolific reservoir that gave its name to the benchmark blend.  Meanwhile, virtually all plans for drilling in the increasingly ice-free waters of the Arctic have been put on hold.

Many reasons have been given for the plunge in oil prices and various “conspiracy theories” have arisen to explain the seemingly inexplicable.  In the past, when prices fell, the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would curtail production to push them higher.  This time, they actually increased output, leading some analysts to suggest that Riyadh was trying to punish oil producers Iran and Russia for supporting the Assad regime in Syria.  New York Times columnist Thomas Friedman, for instance, claimed that the Saudis were trying to “bankrupt” those countries “by bringing down the price of oil to levels below what both Moscow and Tehran need to finance their budgets.” Variations on this theme have been advanced by other pundits.

The reality of the matter has turned out to be significantly more straightforward: U.S. and Canadian producers were adding millions of barrels a day in new production to world markets at a time when global demand was incapable of absorbing so much extra crude oil.  An unexpected surge in Iraqi production added additional crude to the growing glut.  Meanwhile, economic malaise in China and Europe kept global oil consumption from climbing at the heady pace of earlier years and so the market became oversaturated with crude.  It was, in other words, a classic case of too much supply, too little demand, and falling prices.  “We are still seeing a lot of supply,” said BP’s Dudley last June.  “There is demand growth, there’s just a lot more supply.”

A War of Attrition

Threatened by this new reality, the Saudis and their allies faced a painful choice.  Accounting for about 40% of world oil output, the OPEC producers exercise substantial but not unlimited power over the global marketplace.  They could have chosen to rein in their own production and so force prices up.  There was, however, little likelihood of non-OPEC producers like Brazil, Canada, Russia, and the United States following suit, so any price increases would have benefitted the energy industries of those countries most, while undoubtedly taking market share from OPEC. However counterintuitive it might have seemed, the Saudis, unwilling to face such a loss, decided to pump more oil.  Their hope was that a steep decline in prices would drive some of their rivals, especially American oil frackers with their far higher production expenses, out of business.  “It is not in the interest of OPEC producers to cut their production, whatever the price is,” the Saudi oil minister Ali al-Naimi explained.  “If I reduce [my price], what happens to my market share?  The price will go up and the Russians, the Brazilians, U.S. shale oil producers will take my share.”

In adopting this strategy, the Saudis knew they were taking big risks.  About 85% of the country’s export income and a staggeringly large share of government revenues come from petroleum sales.  Any sustained drop in prices would threaten the royal family’s ability to maintain public stability through the generous payments, subsidies, and job programs it offers to so many of its citizens.  However, when oil prices were high, the Saudis socked away hundreds of billions of dollars in various investment accounts around the world and are now drawing on those massive cash reserves to keep public discontent to a minimum (even while belt-tightening begins).  “If prices continue to be low, we will be able to withstand it for a long, long time,” Khalid al-Falih, the chairman of Saudi Aramco, the kingdom’s national oil company, insisted in January at the World Economic Forum in Davos, Switzerland.

The result of all this has been an “oil war of attrition” — a struggle among the major oil producers for maximum exposure in an overcrowded energy bazaar. Eventually, the current low prices will drive some producers out of business and so global oversupply will assumedly dissipate, pushing prices back up. But how long that might take no one knows. If Saudi Arabia can indeed hold out for the duration without stirring significant domestic unrest, it will, of course, be in a strong position to profit when the price rebound finally occurs.

It is not yet certain, however, that the Saudis will succeed in their drive to crush shale producers in the United States or other competitors elsewhere before they drain their overseas investment accounts and the foundations of their world begin to crumble. In recent weeks, in fact, there have been signs that they are beginning to get nervous.  These include moves to reduce government subsidies and talks initiated with Russia and Venezuela about freezing, if not reducing, output.

An Oil Glut Unleashes “World-Class Havoc”

In the meantime, there can be no question that the war of attrition is beginning to take its toll.  In addition to hard-hit Arctic and North Sea producers, companies exploiting Alberta’s Athabasca tar sands are exhibiting all the signs of an oncoming crisis.  While most tar sands outfits continue to operate (often at a loss), they are now postponing or cancelling future projects, while the space between the future and the present shrinks ominously.

Just about every firm in the oil business is being hurt by the new price norms, but hardest struck have been those that rely on “unconventional” means of extraction like Brazilian deep-sea drilling, U.S. hydro-fracking, and Canadian tar sands exploitation.  Such techniques were developed by the major companies to compensate for an expected long-term decline in conventional oil fields (those close to the surface, close to shore, and in permeable rock formations).  By definition, unconventional or “tough oil” requires more effort to pry out of the ground and so costs more to exploit.  The break-even point for tar sands production, for example, sometimes reaches $80 per barrel, for shale oil typically $50 to $60 a barrel.  What isn’t a serious problem when oil is selling at $100 a barrel or more becomes catastrophic when it languishes in the $30 to $40 range, as it has over much of the past half-year.

And keep in mind that, in such an environment, as oil companies contract or fail, they take with them hundreds of smaller companies — field services providers, pipeline builders, transportation handlers, caterers, and so on — that benefitted from the all-too-brief “energy renaissance” in North America.  Many have already laid off a large share of their workforce or simply been driven out of business.  As a result, once-booming oil towns like Williston, North Dakota, and Fort McMurray, Alberta, have fallen into hard times, leaving their “man camps” (temporary housing for male oil workers) abandoned and storefronts shuttered.

In Williston — once the epicenter of the shale oil boom — many families now line up for free food at local churches and rely on the Salvation Army for clothes and other necessities, according to Tim Marcin of the International Business Times.  Real estate has also been hard hit.  “As jobs dried up and families fled, some residential neighborhoods became ghost towns,” Marcin reports. “City officials estimated hotels and apartments, many of which were built during the boom, were at about 50-60% occupancy in November.”

Add to this another lurking crisis: the failure or impending implosion of many shale producers is threatening the financial health of American banks which lent heavily to the industry during the boom years from 2010 to 2014.  Over the past five years, according to financial data provider Dealogic, oil and gas companies in the United States and Canada issued bonds and took out loans worth more than $1.3 trillion.  Much of this is now at risk as companies default on loans or declare bankruptcy.  Citibank, for example, reports that 32% of its loans in the energy sector were given to companies with low credit ratings, which are considered at greater risk of default.  Wells Fargo says that 17% of its energy exposure was to such firms.  As the number of defaults has increased, banks have seen their stock values decline, and this — combined with the falling value of oil company shares — has been rattling the stock market.

The irony, of course, is that the technological breakthroughs so lauded in 2012 for their success in enhancing America’s energy prowess are now responsible for the market oversupply that is bringing so much misery to people, companies, and communities in North America’s oil patches.  “At the beginning of 2014, [the U.S.] was pumping so much oil and gas that experts foresaw a new American industrial renaissance, with trillions of dollars in investments and millions of new jobs,” commented energy expert Steve LeVine in February.   Two years later, he points out, “faces are aghast as the same oil instead has unleashed world-class havoc.”

The Geopolitical Scorecard From Hell

If that promised new industrial renaissance has failed to materialize, what about the geopolitical advantages that new oil and gas production was to give an emboldened Washington? Yergin and others asserted that the surge in North American output would shift the center of gravity of world production to the Western Hemisphere, allowing, among other things, the export of U.S. liquefied natural gas, or LNG, to Europe.  That, in turn, would diminish the reliance of allies like Germany on Russian gas and so increase American influence and power.  We were, in other words, to be in a new triumphalist world in which the planet’s sole superpower would benefit greatly from, as energy analysts Amy Myers Jaffe and Ed Morse put it in 2013, a “counterrevolution against the energy world created by OPEC.”

So far, there is little evidence of such a geopolitical bonanza.  In Saudi attrition-war fashion, for instance, Russia’s natural gas giant Gazprom has begun lowering the price at which it sells gas to Europe, rendering American LNG potentially uncompetitive in markets there.  True, on February 25th, the first cargo of that LNG was shipped to foreign markets, but it was destined for Brazil, not Europe.

Meanwhile, Brazil and Canada — two anchors of the “new world oil map” predicted by Yergin in 2011 — have been devastated by the oil price decline.  Production in the United States has not yet suffered as greatly, thanks largely to increased efficiency in the producing regions.  However, pillars of the new industry are starting to go out of business or are facing possible bankruptcy, while in the global war of attrition, the Saudis have so far retained their share of the market and are undoubtedly going to play a commanding role in global oil deals for decades to come (assuming, of course, that the country doesn’t come apart at the seams under the strains of the present oil glut).  So much for the “counterrevolution” against OPEC.  Meanwhile, the landscapes of Texas, Pennsylvania, North Dakota, and Alberta are increasingly littered with the rusting detritus of a brand-new industry already in decline, and American power is no more robust than before.

In the end, the oil attrition wars may lead us not into a future of North American triumphalism, nor even to a more modest Saudi version of the same, but into a strange new world in which an unlimited capacity to produce oil meets an increasingly crippled capitalist system without the capacity to absorb it.

Think of it this way: in the conflagration of the take-no-prisoners war the Saudis let loose, a centuries-old world based on oil may be ending in both a glut and a hollowing out on an increasingly overheated planet. A war of attrition indeed.

Copyright 2016 Michael T. Klare

Energy Wars of Attrition

As 2015 drew to a close, many in the global energy industry were praying that the price of oil would bounce back from the abyss, restoring the petroleum-centric world of the past half-century.  All evidence, however, points to a continuing depression in oil prices in 2016 — one that may, in fact, stretch into the 2020s and beyond.  Given the centrality of oil (and oil revenues) in the global power equation, this is bound to translate into a profound shakeup in the political order, with petroleum-producing states from Saudi Arabia to Russia losing both prominence and geopolitical clout.

To put things in perspective, it was not so long ago — in June 2014, to be exact — that Brent crude, the global benchmark for oil, was selling at $115 per barrel.  Energy analysts then generally assumed that the price of oil would remain well over $100 deep into the future, and might gradually rise to even more stratospheric levels.  Such predictions inspired the giant energy companies to invest hundreds of billions of dollars in what were then termed “unconventional” reserves: Arctic oil, Canadian tar sands, deep offshore reserves, and dense shale formations. It seemed obvious then that whatever the problems with, and the cost of extracting, such energy reserves, sooner or later handsome profits would be made. It mattered little that the cost of exploiting such reserves might reach $50 or more a barrel.

As of this moment, however, Brent crude is selling at $33 per barrel, one-third of its price 18 months ago and way below the break-even price for most unconventional “tough oil” endeavors. Worse yet, in one scenario recently offered by the International Energy Agency (IEA), prices might not again reach the $50 to $60 range until the 2020s, or make it back to $85 until 2040. Think of this as the energy equivalent of a monster earthquake — a pricequake — that will doom not just many “tough oil” projects now underway but some of the over-extended companies (and governments) that own them.

The current rout in oil prices has obvious implications for the giant oil firms and all the ancillary businesses — equipment suppliers, drill-rig operators, shipping companies, caterers, and so on — that depend on them for their existence. It also threatens a profound shift in the geopolitical fortunes of the major energy-producing countries. Many of them, including Nigeria, Saudi Arabia, Russia, and Venezuela, are already experiencing economic and political turmoil as a result. (Think of this, for instance, as a boon for the terrorist group Boko Haram as Nigeria shudders under the weight of those falling prices.) The longer such price levels persist, the more devastating the consequences are likely to be.

A Perfect Storm

Generally speaking, oil prices go up when the global economy is robust, world demand is rising, suppliers are pumping at maximum levels, and little stored or surplus capacity is on hand.  They tend to fall when, as now, the global economy is stagnant or slipping, energy demand is tepid, key suppliers fail to rein in production in consonance with falling demand, surplus oil builds up, and future supplies appear assured.

During the go-go years of the housing boom, in the early part of this century, the world economy was thriving, demand was indeed soaring, and many analysts were predicting an imminent “peak” in world production followed by significant scarcities.  Not surprisingly, Brent prices rose to stratospheric levels, reaching a record $143 per barrel in July 2008.  With the failure of Lehman Brothers on September 15th of that year and the ensuing global economic meltdown, demand for oil evaporated, driving prices down to $34 that December.

With factories idle and millions unemployed, most analysts assumed that prices would remain low for some time to come.  So imagine the surprise in the oil business when, in October 2009, Brent crude rose to $77 per barrel.  Barely more than two years later, in February 2011, it again crossed the $100 threshold, where it generally remained until June 2014.

Several factors account for this price recovery, none more important than what was happening in China, where the authorities decided to stimulate the economy by investing heavily in infrastructure, especially roads, bridges, and highways.  Add in soaring automobile ownership among that country’s urban middle class and the result was a sharp increase in energy demand.  According to oil giant BP, between 2008 and 2013, petroleum consumption in China leaped 35%, from 8.0 million to 10.8 million barrels per day.  And China was just leading the way.  Rapidly developing countries like Brazil and India followed suit in a period when output at many existing, conventional oil fields had begun to decline; hence, that rush into those “unconventional” reserves.

This is more or less where things stood in early 2014, when the price pendulum suddenly began swinging in the other direction, as production from unconventional fields in the U.S. and Canada began to make its presence felt in a big way.  Domestic U.S. crude production, which had dropped from 7.5 million barrels per day in January 1990 to a mere 5.5 million barrels in January 2010, suddenly headed upwards, reaching a stunning 9.6 million barrels in July 2015.  Virtually all the added oil came from newly exploited shale formations in North Dakota and Texas.  Canada experienced a similar sharp uptick in production, as heavy investment in tar sands began to pay off.  According to BP, Canadian output jumped from 3.2 million barrels per day in 2008 to 4.3 million barrels in 2014.  And don’t forget that production was also ramping up in, among other places, deep-offshore fields in the Atlantic Ocean off both Brazil and West Africa, which were just then coming on line.  At that very moment, to the surprise of many, war-torn Iraq succeeded in lifting its output by nearly one million barrels per day.

Add it all up and the numbers were staggering, but demand was no longer keeping pace.  The Chinese stimulus package had largely petered out and international demand for that country’s manufactured goods was slowing, thanks to tepid or nonexistent economic growth in the U.S., Europe, and Japan.  From an eye-popping annual rate of 10% over the previous 30 years, China’s growth rate fell into the single digits.  Though China’s oil demand is expected to keep rising, it is not projected to grow at anything like the pace of recent years.

At the same time, increased fuel efficiency in the United States, the world’s leading oil consumer, began to have an effect on the global energy picture.  At the height of the country’s financial crisis, when the Obama administration bailed out both General Motors and Chrysler, the president forced the major car manufacturers to agree to a tough set of fuel-efficiency standards now noticeably reducing America’s demand for petroleum.  Under a plan announced by the White House in 2012, the average fuel efficiency of U.S.-manufactured cars and light vehicles will rise to 54.5 miles per gallon by 2025, reducing expected U.S. oil consumption by 12 billion barrels between now and then.

In mid-2014, these and other factors came together to produce a perfect storm of price suppression.  At that time, many analysts believed that the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would, as in the past, respond by reining in production to bolster prices.  However, on November 27, 2014 — Thanksgiving Day — OPEC confounded those expectations, voting to maintain the output quotas of its member states.  The next day, the price of crude plunged by $4 and the rest is history.

A Dismal Prospect

In early 2015, many oil company executives were expressing the hope that these fundamentals would soon change, pushing prices back up again.  But recent developments have demolished such expectations.

Aside from the continuing economic slowdown in China and the surge of output in North America, the most significant factor in the unpromising oil outlook, which now extends bleakly into 2016 and beyond, is the steadfast Saudi resistance to any proposals to curtail their production or OPEC’s.  On December 4th, for instance, OPEC members voted yet again to keep quotas at their current levels and, in the process, drove prices down another 5%.  If anything, the Saudis have actually increased their output.

Many reasons have been given for the Saudis’ resistance to production cutbacks, including a desire to punish Iran and Russia for their support of the Assad regime in Syria.  In the view of many industry analysts, the Saudis see themselves as better positioned than their rivals for weathering a long-term price decline because of their lower costs of production and their large cushion of foreign reserves.  The most likely explanation, though, and the one advanced by the Saudis themselves is that they are seeking to maintain a price environment in which U.S. shale producers and other tough-oil operators will be driven out of the market.  “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including U.S. shale, deep offshore, and heavy oils,” a top Saudi official told the Financial Times last spring.

Despite the Saudis’ best efforts, the larger U.S. producers have, for the most part, adjusted to the low-price environment, cutting costs and shedding unprofitable operations, even as many smaller firms have filed for bankruptcy. As a result, U.S. crude production, at about 9.2 million barrels per day, is actually slightly higher than it was a year ago.

In other words, even at $33 a barrel, production continues to outpace global demand and there seems little likelihood of prices rising soon, especially since, among other things, both Iraq and Iran continue to increase their output.  With the Islamic State slowly losing ground in Iraq and most major oil fields still in government hands, that country’s production is expected to continue its stellar growth.  In fact, some analysts project that its output could triple during the coming decade from the present three million barrels per day level to as much as nine million barrels.

For years, Iranian production has been hobbled by sanctions imposed by Washington and the European Union (E.U.), impeding both export transactions and the acquisition of advanced Western drilling technology.  Now, thanks to its nuclear deal with Washington, those sanctions are being lifted, allowing it both to reenter the oil market and import needed technology.  According to the U.S. Energy Information Administration, Iranian output could rise by as much as 600,000 barrels per day in 2016 and by more in the years to follow.

Only three developments could conceivably alter the present low-price environment for oil: a Middle Eastern war that took out one or more of the major energy suppliers; a Saudi decision to constrain production in order to boost prices; or an unexpected global surge in demand.

The prospect of a new war between, say, Iran and Saudi Arabia — two powers at each other’s throats at this very moment — can never be ruled out, though neither side is believed to have the capacity or inclination to undertake such a risky move. A Saudi decision to constrain production is somewhat more likely sooner or later, given the precipitous decline in government revenues. However, the Saudis have repeatedly affirmed their determination to avoid such a move, as it would largely benefit the very producers — namely shale operators in the U.S. — they seek to eliminate.

The likelihood of a sudden spike in demand appears unlikely indeed.  Not only is economic activity still slowing in China and many other parts of the world, but there’s an extra wrinkle that should worry the Saudis at least as much as all that shale oil coming out of North America: oil itself is beginning to lose some of its appeal.

While newly affluent consumers in China and India continue to buy oil-powered automobiles — albeit not at the breakneck pace once predicted — a growing number of consumers in the older industrial nations are exhibiting a preference for hybrid and all-electric cars, or for alternative means of transportation.  Moreover, with concern over climate change growing globally, increasing numbers of young urban dwellers are choosing to subsist without cars altogether, relying instead on bikes and public transit.  In addition, the use of renewable energy sources — sun, wind, and water power — is on the rise and will only grow more rapidly in this century.

These trends have prompted some analysts to predict that global oil demand will soon peak and then be followed by a period of declining consumption.  Amy Myers Jaffe, director of the energy and sustainability program at the University of California, Davis, suggests that growing urbanization combined with technological breakthroughs in renewables will dramatically reduce future demand for oil.  “Increasingly, cities around the world are seeking smarter designs for transport systems as well as penalties and restrictions on car ownership. Already in the West, trendsetting millennials are urbanizing, eliminating the need for commuting and interest in individual car ownership,” she wrote in the Wall Street Journal last year.

The Changing World Power Equation

Many countries that get a significant share of their funds from oil and natural gas exports and that gained enormous influence as petroleum exporters are already experiencing a significant erosion in prominence.  Their leaders, once bolstered by high oil revenues, which meant money to spread around and buy popularity domestically, are falling into disfavor.

Nigeria’s government, for example, traditionally obtains 75% of its revenues from such sales; Russia’s, 50%; and Venezuela’s, 40%.  With oil now at a third of the price of 18 months ago, state revenues in all three have plummeted, putting a crimp in their ability to undertake ambitious domestic and foreign initiatives.

In Nigeria, diminished government spending combined with rampant corruption discredited the government of President Goodluck Jonathan and helped fuel a vicious insurgency by Boko Haram, prompting Nigerian voters to abandon him in the most recent election and install a former military ruler, Muhammadu Buhari, in his place.  Since taking office, Buhari has pledged to crack down on corruption, crush Boko Haram, and — in a telling sign of the times — diversify the economy, lessening its reliance on oil.

Venezuela has experienced a similar political shock thanks to depressed oil prices.  When prices were high, President Hugo Chávez took revenues from the state-owned oil company, Petróleos de Venezuela S.A., and used them to build housing and provide other benefits for the country’s poor and working classes, winning vast popular support for his United Socialist Party.  He also sought regional support by offering oil subsidies to friendly countries like Cuba, Nicaragua, and Bolivia.  After he died in March 2013, his chosen successor, Nicolas Maduro, sought to perpetuate this strategy, but oil didn’t cooperate and, not surprisingly, public support for him and for Chávez’s party began to collapse.  On December 6th, the center-right opposition swept to electoral victory, taking a majority of the seats in the National Assembly.  It now seeks to dismantle Chávez’s “Bolivarian Revolution,” though Maduro’s supporters have pledged firm resistance to any such moves.

The situation in Russia remains somewhat more fluid.  President Vladimir Putin continues to enjoy widespread popular support and, from Ukraine to Syria, he has indeed been moving ambitiously on the international front.  Still, falling oil prices combined with economic sanctions imposed by the E.U. and the U.S. have begun to cause some expressions of dissatisfaction, including a recent protest by long-distance truckers over increased highway tolls. Russia’s economy is expected to contract in a significant way in 2016, undermining the living standards of ordinary Russians and possibly sparking further anti-government protests.  In fact, some analysts believe that Putin took the risky step of intervening in the Syrian conflict partly to deflect public attention from deteriorating economic conditions at home.  He may also have done so to create a situation in which Russian help in achieving a negotiated resolution to the bitter, increasingly internationalized Syrian civil war could be traded for the lifting of sanctions over Ukraine.  If so, this is a very dangerous game, and no one — least of all Putin — can be certain of the outcome.

Saudi Arabia, the world’s leading oil exporter, has been similarly buffeted, but appears — for the time being, anyway — to be in a somewhat better position to weather the shock.  When oil prices were high, the Saudis socked away a massive trove of foreign reserves, estimated at three-quarters of a trillion dollars.  Now that prices have fallen, they are drawing on those reserves to sustain generous social spending meant to stave off unrest in the kingdom and to finance their ambitious intervention in Yemen’s civil war, which is already beginning to look like a Saudi Vietnam.  Still, those reserves have fallen by some $90 billion since last year and the government is already announcing cutbacks in public spending, leading some observers to question how long the royal family can continue to buy off the discontent of the country’s growing populace.  Even if the Saudis were to reverse course and limit the kingdom’s oil production to drive the price of oil back up, it’s unlikely that their oil income would rise high enough to sustain all of their present lavish spending priorities.

Other major oil-producing countries also face the prospect of political turmoil, including Algeria and Angola.  The leaders of both countries had achieved the usual deceptive degree of stability in energy producing countries through the usual oil-financed government largesse.  That is now coming to an end, which means that both countries could face internal challenges.

And keep in mind that the tremors from the oil pricequake have undoubtedly yet to reach their full magnitude.  Prices will, of course, rise someday.  That’s inevitable, given the way investors are pulling the plug on energy projects globally.  Still, on a planet heading for a green energy revolution, there’s no assurance that they will ever reach the $100-plus levels that were once taken for granted.  Whatever happens to oil and the countries that produce it, the global political order that once rested on oil’s soaring price is doomed.  While this may mean hardship for some, especially the citizens of export-dependent states like Russia and Venezuela, it could help smooth the transition to a world powered by renewable forms of energy.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation. Follow him on Twitter at @mklare1.

Copyright 2016 Michael T. Klare

The Oil Pricequake

Historically, the transition from one energy system to another, as from wood to coal or coal to oil, has proven an enormously complicated process, requiring decades to complete. In similar fashion, it will undoubtedly be many years before renewable forms of energy — wind, solar, tidal, geothermal, and others still in development — replace fossil fuels as the world’s leading energy providers. Nonetheless, 2015 can be viewed as the year in which the epochal transition from one set of fuels to another took off, with renewables making such significant strides that, for the first time in centuries, the beginning of the end of the Fossil Fuel Era has come into sight.

This shift will take place no matter how well or poorly the deal just achieved at the U.N. climate summit in Paris is carried out. Although a robust commitment by participating nations to curb future carbon emissions will certainly help speed the transition, the necessary preconditions — political will, investment capital, and technological momentum — are already in place to drive the renewable revolution forward. Lending a hand to this transformation will be a sharp and continuing reduction in the cost of renewable energy, making it increasingly competitive with fossil fuels. According to the Paris-based International Energy Agency (IEA), between now and 2040 global investments in renewable power capacity will total $7 trillion, accounting for 60% of all power plant investment.

Fossil fuels will not, of course, disappear during this period.  Too much existing infrastructure — refineries, distribution networks, transportation systems, power plants, and the like — are dependent on oil, coal, and natural gas, which means, unfortunately, that these fuels will continue to play a prominent role for decades.  But the primary thrust of new policies, new investment, and new technology will be in the advancement of renewables.

Breakthrough Initiatives

Two events on the periphery of the Paris climate summit were especially noteworthy in terms of the renewable revolution: the announcement of an International Solar Alliance by India and France, and the launching of the Breakthrough Energy Coalition by Bill Gates of Microsoft, Jeff Bezos of Amazon, and a host of other billionaires.

As described by Indian Prime Minister Narendra Modi, the International Solar Alliance is meant to mobilize private and public funds for the development and installation of affordable solar systems on a global scale, especially in developing countries.  “We intend making joint efforts through innovative policies, projects, programs, capacity-building measures, and financial instruments to mobilize more than 1,000 billion U.S. dollars of investments that are needed by 2030 for the massive deployment of affordable solar energy,” Modi and French President François Hollande indicated in a joint statement on November 30th.

According to its sponsors, the aim of this program is to pool financing from both public and private sources in order to bring down the costs of solar systems even further and speed their utilization, especially in poor tropical countries.  “The vast majority of humans are blessed with sunlight throughout the year,” Modi explained.  “We want to bring solar energy into their lives.”

To get the alliance off the ground, the Indian government will commit some $30 billion for the establishment of the alliance’s headquarters in New Delhi.  Modi has also pledged to increase solar power generation in India by 2,500% over the next seven years, expanding output from 4 to 100 gigawatts — thereby creating a vast new market for solar technology and devices.  “This day is the sunrise of new hope, not just for clean energy, but for villages and homes still in darkness,” he said in Paris, adding that the solar alliance would create “unlimited economic opportunities” for green energy entrepreneurs.

The Breakthrough Energy Coalition, reportedly the brainchild of Bill Gates, will seek to channel private and public funds into the development of advanced green-energy technologies to speed the transition from fossil fuels to renewables.  “Technology will help solve our energy issues,” the project’s website states.  “Scientists, engineers, and entrepreneurs can invent and scale the innovative technologies that will limit the impact of climate change while providing affordable and reliable energy to everyone.”

As Gates imagines it, the new venture will seek to bundle funds from wealthy investors in order to move innovative energy breakthroughs from the laboratory — where they often languish — to full-scale development and production.  “Experience indicates that even the most promising ideas face daunting commercialization challenges and a nearly impassable Valley of Death between promising concept and viable product,” the project notes.  “This collective failure can be addressed, in part, by a dramatically scaled-up public research pipeline, linked to a different kind of private investor with a long-term commitment to new technologies who is willing to put truly patient flexible risk capital to work.”

Joining Gates and Bezos in this venture are a host of super-rich investors, including Jack Ma, founder and executive chairman of Alibaba, the Chinese internet giant; Mark Zuckerberg, the founder and chairman of Facebook; George Soros, chairman of Soros Fund Management; and Ratan Tata, chairman emeritus of India’s giant Tata Sons conglomerate.  While seeking to speed the progress of green technology, these investors also see a huge potential for future profits in this field and, as the venture claims, “will certainly be motivated partly by the possibility of making big returns over the long-term, but also by the criticality of an energy transition.”

While vast in their ambitions, these two schemes are not without their critics.  Some environmentalists worry, for example, that Modi’s enthusiasm for the International Solar Alliance might actually be a public relations device aimed at deflecting criticism from his plans for increasing India’s reliance on coal to generate electricity.  A report by Climate Action Tracker, an environmental watchdog group, noted, for instance, that “the absolute growth in [India’s] coal-powered electric generating capacity would be significantly larger than the absolute increase in renewable/non-fossil generation capacity” in that country between 2013 and 2030.  “Ultimately, this would lead to a greater lock-in of carbon-intensive power infrastructure in India than appears necessary.”

The Gates initiative has come under criticism for favoring still-experimental “breakthrough” technologies over further improvements in here-and-now devices such as solar panels and wind turbines.  For example, Joe Romm, a climate expert and former acting assistant secretary of energy, recently wrote at the website Climate Progress that “Gates has generally downplayed the amazing advances we’ve had in the keystone clean technologies,” such as wind and solar, while “investing in new nuclear power, geo-engineering technologies, and off-the-wall stuff.”

Despite such criticisms, the far-reaching implications and symbolic importance of these initiatives shouldn’t be dismissed.  By funneling billions — and in the end undoubtedly trillions — of dollars into the development and deployment of green technologies, these politicians and plutocrats are ensuring that the shift from fossil fuels to renewables will gain further momentum with each passing year until it becomes unstoppable.

The Developing World Goes Green

In another sign of this epochal shift, ever more countries in the developing world — including some oil-producing ones — are embracing renewables as their preferred energy sources.  According to the IEA, the newly industrialized countries, spearheaded by China and India, will spend $2.7 trillion on renewable-based power plants between 2015 and 2040, far more than the older industrialized nations.

This embrace of renewables by the developing world is especially significant given the way the major oil and gas companies — led by ExxonMobil and BP — have long argued that cheap fossil fuels provide these countries with the smoothest path to rapid economic development.  Exxon CEO Rex Tillerson has even claimed that there is a “humanitarian imperative” to providing the developing world with cheap fossil fuels in order to save “millions and millions of lives.”

In accordance with this self-serving rhetoric, Exxon, BP, Royal Dutch Shell, and other energy giants have been madly expanding their oil and gas distribution networks in Asia, Africa, and other developing areas.

Increasingly, however, the targets of this push are rejecting fossil fuels in favor of renewables. Morocco, for example, has pledged to obtain 42% of its electricity from renewables by 2020, far more than planned by the members of the European Union. Later this month, the country will commence operations at the Ouarzazate solar thermal plant, a mammoth facility capable of supplying electricity to one million homes by relying on an array of revolving parabolic mirrors covering some 6,000 acres. These will concentrate the power of sunlight and use it to produce steam for electricity-generating turbines.

Elsewhere in Africa, authorities in Rwanda have commissioned a vast solar array at Agahozo-Shalom Youth Village, about 40 miles east of Kigali, the capital. Consisting of 28,360 computer-controlled solar panels, the array can generate 8.5 megawatts of electricity, or about 6% of Rwanda’s capacity. Spread over an undulating hill, the panels are laid out in the shape of the African continent and are meant to be symbolic of solar energy’s importance to that energy-starved continent. “We have plenty of sun,” said Twaha Twagirimana, the plant supervisor.  “Some are living in remote areas where there is no energy.  Solar will be the way forward for African countries.”

Even more significant, a number of major oil-producing countries have begun championing renewables, too. On November 28th, for example, Sheikh Mohammed bin Rashid, vice president and ruler of Dubai, launched the Dubai Clean Energy Strategy 2050, which aims to make the emirate a global center of green energy.  According to present plans, 25% of Dubai’s energy will come from clean energy sources by 2030 and 75% by 2050.  As part of this drive, solar panels will be made mandatory for all rooftops by 2030.  “Our goal is to become the city with the smallest carbon footprint in the world by 2050,” Sheikh Mohammed said when announcing the initiative.

As part of its green energy drive, Dubai is constructing the Mohammed bin Rashid Al Maktoum Solar Park, intended to be the world’s largest solar facility.  When completed, around 2030, the giant complex will produce some 5,000 megawatts of energy — about eight times as much as the Ouarzazate solar plant.

Long-Term Prospects

Evidence that an accelerating shift to renewables is already underway can also be found in recent studies of the global energy industry, most notably in the IEA’s just-released annual assessment of industry trends, World Energy Outlook 2015.  “There are unmistakable signs that the much needed global energy transition is under way,” the report noted, with “60 cents of every dollar invested in new power plants to 2040 [to be] spent on renewable energy technologies.”

The growing importance of renewables, the IEA noted, is especially evident in the case of electricity generation.  As more countries follow the growth patterns seen in China and South Korea, electricity is expected to provide an ever-increasing share of world energy requirements.  Global electricity use, the report says, will grow by 46% between 2013 and 2040; all other forms of energy use, by only 24%.  As a result, the share of total world energy provided by electricity will rise from 38% to 42%.

This shift is significant because renewables will provide a greater share of the energy used to generate electricity.  Whereas they contributed only 12% of energy to power generation in 2013, the IEA reports, they are expected to supply 24% in 2040; meanwhile, the shares provided by coal and natural gas will grow by far smaller percentages, and that by oil will actually shrink.  While coal and gas are still likely to dominate the power sector in 2040, the trend lines suggest that they will lose ever more ground to renewables as time goes on.

Contributing to the growing reliance on renewables, the IEA finds, is a continuing drop in the cost of deploying these technologies.  Once considered pricey compared to fossil fuels, renewables are beginning to win out on cost alone.  In 2014, the agency noted, “about three-quarters of global renewables-based [power] generation was competitive with electricity from other types of power plants without subsidies,” with large hydropower facilities contributing much of this share.

Certainly, renewables continue to benefit from subsidies of various sorts.  In 2014, the IEA reports, governments provided some $112 billion to underwrite renewable power generation.  While this may seem like a significant amount, it is only about a quarter of the $490 billion in subsidies governments offered globally to the fossil fuel industry.  If those outsized subsidies were eliminated and a price imposed on the consumption of carbon, as proposed in many of the schemes to be introduced in the wake of the Paris climate summit, renewables would become instantly competitive without subsidies.

Go Green Young Man and Young Woman

All this is not to say that the world will be a green-energy paradise in 2030 or 2040.  Far from it.  Barring the unexpected, fossil fuels will continue to rule in many areas, especially transportation, and the resulting carbon emissions will continue to warm the planet disastrously.  By then, however, most new investment in the energy field will, at least, be devoted to renewables and in most places globally there will be rules and regulations aimed at facilitating their installation.

As a college professor, I often think about such developments in terms of my students.  When they ask me for career advice these days, I urge them to gear their studies toward some field likely to prosper in exactly this future environment: renewable energy systems, green architecture and city planning, alternative transportation and industrial systems, sustainable development, and environmental law, among others.  And more and more of my students are, in fact, choosing such paths.

Likewise, if I were a future venture capitalist, I would follow the lead of Gates, Bezos, and the other tycoons in the Breakthrough Energy Coalition by seeking out the most innovative work in the green energy field.  It offers as close as you can get to a guarantee against failure.  As the consumption of renewable energy explodes, the incentives for power and money-saving technical breakthroughs are only going to grow and the rate of discovery is sure to rise as well, undoubtedly offering enormous payback possibilities for those getting a piece of the action early.

Finally, if I were an aspiring politician, whether in this country or elsewhere, I would be spinning plans for my city, state, or nation to take the lead in the green energy revolution.  Once the transition from fossil fuels to renewables gains more momentum, leadership in the development and deployment of green technologies will become a far more popular position, which means it will increase your electability.  This proposition is already beginning to be tested.  For example, the Labor Party candidate for mayor of London, Sadiq Khan, is now leading the way by building his campaign around a promise to set that city on course to be 100% powered by renewables by 2050.

You’re still going to hear a lot about fossil fuels — and for good reason — but make no mistake about it: the future belongs to renewables.  Of course, Big Energy, the giant utilities, and the lobbyists and politicians in their pay, including just about the complete climate-change-denying Republican Party, will do everything in their (not insignificant) power to perpetuate the Fossil Fuel Era.  In the process, they will cause immeasurable harm to the planet and to us all.  They will win some battles.  In the process, they will also be committing some of the great crimes of history.  But the war they are fighting is a losing one. Inevitably, ever more people — especially the most dynamic and creative of the young — will be hitching their futures to the coming of a genuinely green civilization, ensuring its ultimate triumph.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation. Follow him on Twitter at @mklare1.

Copyright 2015 Michael Klare

A New World Beckons

At the end of November, delegations from nearly 200 countries will convene in Paris for what is billed as the most important climate meeting ever held.  Officially known as the 21st Conference of the Parties (COP-21) of the United Nations Framework Convention on Climate Change (the 1992 treatythat designated that phenomenon a threat to planetary health and human survival), the Paris summit will be focused on the adoption of measures that would limit global warming to less than catastrophic levels. If it fails, world temperatures in the coming decades are likely to exceed 2 degrees Celsius (3.5 degrees Fahrenheit), the maximum amount most scientists believe the Earth can endure without experiencing irreversible climate shocks, includingsoaring temperatures and a substantial rise in global sea levels.

A failure to cap carbon emissions guarantees another result as well, though one far less discussed.  It will, in the long run, bring on not just climate shocks, but also worldwide instability, insurrection, and warfare.  In this sense, COP-21 should be considered not just a climate summit but a peace conference — perhaps the most significant peace convocation in history.

To grasp why, consider the latest scientific findings on the likely impacts of global warming, especially the 2014 report of the Intergovernmental Panel on Climate Change (IPCC).  When first published, that report attracted worldwide media coverage for predicting that unchecked climate change willresult in severe droughts, intense storms, oppressive heat waves, recurring crop failures, and coastal flooding, all leading to widespread death and deprivation.  Recent events, including a punishing drought in California and crippling heat waves in Europe and Asia, have focused more attention on just such impacts.  The IPCC report, however, suggested that global warming would have devastating impacts of a social and political nature as well, including economic decline, state collapse, civil strife, mass migrations, and sooner or later resource wars.

These predictions have received far less attention, and yet the possibility of such a future should be obvious enough since human institutions, like natural systems, are vulnerable to climate change.  Economies are going to suffer when key commodities — crops, timber, fish, livestock — grow scarcer, are destroyed, or fail.  Societies will begin to buckle under the strain of economic decline and massive refugee flows. Armed conflict may not be the most immediate consequence of these developments, the IPCC notes, but combine the effects of climate change with already existing poverty, hunger, resource scarcity, incompetent and corrupt governance, and ethnic, religious, or national resentments, and you’re likely to end up with bitter conflicts over access to food, water, land, and other necessities of life.

The Coming of Climate Civil Wars

Such wars would not arise in a vacuum.  Already existing stresses and grievances would be heightened, enflamed undoubtedly by provocative acts and the exhortations of demagogic leaders.  Think of the current outbreak of violence in Israel and the Palestinian territories, touched off by clashes over access to the Temple Mount in Jerusalem (also known as the Noble Sanctuary) and the inflammatory rhetoric of assorted leaders. Combine economic and resource deprivation with such situations and you have a perfect recipe for war.

The necessities of life are already unevenly distributed across the planet. Often the divide between those with access to adequate supplies of vital resources and those lacking them coincides with long-term schisms along racial, ethnic, religious, or linguistic lines.  The Israelis and Palestinians, for example, harbor deep-seated ethnic and religious hostilities but also experience vastly different possibilities when it comes to access to land and water.  Add the stresses of climate change to such situations and you can naturally expect passions to boil over.

Climate change will degrade or destroy many natural systems, often already under stress, on which humans rely for their survival.  Some areas that now support agriculture or animal husbandry may become uninhabitable or capable only of providing for greatly diminished populations.  Under the pressure of rising temperatures and increasingly fierce droughts, the southern fringe of the Sahara desert, for example, is now being transformed from grasslands capable of sustaining nomadic herders into an empty wasteland, forcing local nomads off their ancestral lands. Many existing farmlands in Africa, Asia, and the Middle East will suffer a similar fate.  Rivers that once supplied water year-round will run only sporadically or dry up altogether, again leaving populations with unpalatable choices.

As the IPCC report points out, enormous pressure will be put upon often weak state institutions to adjust to climate change and aid those in desperate need of emergency food, shelter, and other necessities. “Increased human insecurity,” the report says, “may coincide with a decline in the capacity of states to conduct effective adaptation efforts, thus creating the circumstances in which there is greater potential for violent conflict.”

A good example of this peril is provided by the outbreak of civil war in Syria and the subsequent collapse of that country in a welter of fighting and a wave of refugees of a sort that hasn’t been seen since World War II.  Between 2006 and 2010, Syria experienced a devastating drought in which climate change is believed to have been a factor, turning nearly 60% of the country into desert.  Crops failed and most of the country’s livestock perished, forcing millions of farmers into penury.  Desperate and unable to live on their land any longer, they moved into Syria’s major cities in search of work, often facing extreme hardship as well as hostility from well-connected urban elites.

Had Syrian autocrat Bashar al-Assad responded with an emergency program of jobs and housing for those displaced, perhaps conflict could have been averted.  Instead, he cut food and fuel subsidies, adding to the misery of the migrants and fanning the flames of revolt.  In the view of several prominent scholars, “the rapidly growing urban peripheries of Syria, marked by illegal settlements, overcrowding, poor infrastructure, unemployment, and crime, were neglected by the Assad government and became the heart of the developing unrest.”

A similar picture has unfolded in the Sahel region of Africa, the southern fringe of the Sahara, where severe drought has combined with habitat decline and government neglect to provoke armed violence.  The area has faced many such periods in the past, but now, thanks to climate change, there is less time between the droughts.  “Instead of 10 years apart, they became five years apart, and now only a couple years apart,” observes Robert Piper, the United Nations regional humanitarian coordinator for the Sahel.  “And that, in turn, is putting enormous stresses on what is already an incredibly fragile environment and a highly vulnerable population.”

In Mali, one of several nations straddling this region, the nomadic Tuaregshave been particularly hard hit, as the grasslands they rely on to feed their cattle are turning into desert.  A Berber-speaking Muslim population, the Tuaregs have long faced hostility from the central government in Bamako, once controlled by the French and now by black Africans of Christian or animist faith.  With their traditional livelihoods in peril and little assistance forthcoming from the capital, the Tuaregs revolted in January 2012, capturing half of Mali before being driven back into the Sahara by French and other foreign forces (with U.S. logistical and intelligence support).

Consider the events in Syria and Mali previews of what is likely to come later in this century on a far larger scale.  As climate change intensifies, bringing not just desertification but rising sea levels in low-lying coastal areas and increasingly devastating heat waves in regions that are already hot, ever more parts of the planet will be rendered less habitable, pushing millions of people into desperate flight.

While the strongest and wealthiest governments, especially in more temperate regions, will be better able to cope with these stresses, expect to see the number of failed states grow dramatically, leading to violence and open warfare over what food, arable land, and shelter remains.  In other words, imagine significant parts of the planet in the kind of state that Libya, Syria, and Yemen are in today.  Some people will stay and fight to survive; others will migrate, almost assuredly encountering a far more violent version of thehostility we already see toward immigrants and refugees in the lands they head for.  The result, inevitably, will be a global epidemic of resource civil wars and resource violence of every sort.

Water Wars

Most of these conflicts will be of an internal, civil character: clan against clan, tribe against tribe, sect against sect.  On a climate-changed planet, however, don’t rule out struggles among nations for diminished vital resources — especially access to water.  It’s already clear that climate change will reduce the supply of water in many tropical and subtropical regions, jeopardizing the continued pursuit of agriculture, the health and functioning of major cities, and possibly the very sinews of society.

The risk of “water wars” will arise when two or more countries depend on the same key water source — the Nile, the Jordan, the Euphrates, the Indus, the Mekong, or other trans-boundary river systems — and one or more of them seek to appropriate a disproportionate share of the ever-shrinking supply of its water.  Attempts by countries to build dams and divert the water flow of such riverine systems have already provoked skirmishes and threats of war, as when Turkey and Syria erected dams on the Euphrates, constraining the downstream flow.

One system that has attracted particular concern in this regard is theBrahmaputra River, which originates in China (where it is known as the Yarlung Tsangpo) and passes through India and Bangladesh before emptying into the Indian Ocean.  China has already erected one dam on the river and has plans for more, producing considerable unease in India, where the Brahmaputra’s water is vital for agriculture.  But what has provoked the most alarm is a Chinese plan to channel water from that river to water-scarce areas in the northern part of that country. 

The Chinese insist that no such action is imminent, but intensified warming and increased drought could, in the future, prompt such a move, jeopardizing India’s water supply and possibly provoking a conflict.  “China’s construction of dams and the proposed diversion of the Brahmaputra’s waters is not only expected to have repercussions for water flow, agriculture, ecology, and lives and livelihoods downstream,” Sudha Ramachandran writes in The Diplomat, “it could also become another contentious issue undermining Sino-Indian relations.”

Of course, even in a future of far greater water stresses, such situations are not guaranteed to provoke armed combat.  Perhaps the states involved will figure out how to share whatever limited resources remain and seek alternative means of survival.  Nonetheless, the temptation to employ force is bound to grow as supplies dwindle and millions of people face thirst and starvation.  In such circumstances, the survival of the state itself will be at risk, inviting desperate measures.

Lowering the Temperature

There is much that undoubtedly could be done to reduce the risk of water wars, including the adoption of cooperative water-management schemes and the introduction of the wholesale use of drip irrigation and related processes that use water far more efficiently. However, the best way to avoid future climate-related strife is, of course, to reduce the pace of global warming.  Every fraction of a degree less warming achieved in Paris and thereafter will mean that much less blood spilled in future climate-driven resource wars.

This is why the Paris climate summit should be viewed as a kind of preemptive peace conference, one that is taking place before the wars truly begin.  If delegates to COP-21 succeed in sending us down a path that limits global warming to 2 degrees Celsius, the risk of future violence will be diminished accordingly.  Needless to say, even 2 degrees of warming guarantees substantial damage to vital natural systems, potentially severe resource scarcities, and attendant civil strife.  As a result, a lower ceiling for temperature rise would be preferable and should be the goal of future conferences.  Still, given the carbon emissions pouring into the atmosphere, even a 2-degree cap would be a significant accomplishment.

To achieve such an outcome, delegates will undoubtedly have to begin dealing with conflicts of the present moment as well, including those in Syria, Iraq, Yemen, and Ukraine, in order to collaborate in devising common, mutually binding climate measures.  In this sense, too, the Paris summit will be a peace conference.  For the first time, the nations of the world will have to step beyond national thinking and embrace a higher goal: the safety of the ecosphere and all its human inhabitants, no matter their national, ethnic, religious, racial, or linguistic identities.  Nothing like this has ever been attempted, which means that it will be an exercise in peacemaking of the most essential sort — and, for once, before the wars truly begin.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education FoundationFollow him on Twitter at @mklare1.

Copyright 2015 Michael T. Klare

Why the Paris Climate Summit Will Be a Peace Conference

Not so long ago, it was science fiction. Now, it’s hard science — and that should frighten us all. The latest reports from the prestigious and sober Intergovernmental Panel on Climate Change (IPCC) make increasingly hair-raising reading, suggesting that the planet is approaching possible moments of irreversible damage in a fashion and at a speed that had not been anticipated.

Scientists have long worried that climate change will not continue to advance in a “linear” fashion, with the planet getting a little bit hotter most years.  Instead, they fear, humanity could someday experience “non-linear” climate shifts (also known as “singularities” or “tipping points”) after which there would be sudden and irreversible change of a catastrophic nature.  This was the premise of the 2004 climate-disaster film The Day After Tomorrow.  In that movie — most notable for its vivid scenes of a frozen-over New York City — melting polar ice causes a disruption in the North Atlantic Current, which in turn triggers a series of catastrophic storms and disasters.  At the time of its release, many knowledgeable scientists derided the film’s premise, insisting that the confluence of events it portrayed was unlikely or simply impossible.

Fast forward 11 years and the prospect of such calamitous tipping points in the North Atlantic or elsewhere no longer looks improbable.  In fact, climate scientists have begun to note early indicators of possible catastrophes.

Take the disruption of the North Atlantic Current, the pivotal event in The Day After Tomorrow.  Essentially an extension of the Gulf Stream, that deep-sea current carries relatively warm salty water from the South Atlantic and the Caribbean to the northern reaches of the Atlantic.  In the process, it helps keep Europe warmer than it would otherwise be.  Once its salty water flows into sub-Arctic areas carried by this prolific stream, it gets colder and heavier, sinks to lower depths, and starts a return trip to warmer climes in the south where the whole process begins again.

So long as this “global conveyor belt” — known to scientists as the Atlantic Meridional Overturning Circulation, or AMOC — keeps functioning, the Gulf Stream will also continue to bring warmer waters to the eastern United States and Europe.  Should it be disrupted, however, the whole system might break down, in which case the Euro-Atlantic climate could turn colder and more storm-prone.  Such a disruption might occur if the vast Greenland ice sheet melts in a significant way, as indeed is already beginning to happen today, pouring large quantities of salt-free fresh water into the Atlantic Ocean.  Because of its lighter weight, this newly introduced water will remain close to the surface, preventing the submergence of salty water from the south and so effectively shutting down the conveyor belt.  Indeed, exactly this process now seems to be underway.

By all accounts, 2015 is likely to wind up as the hottest year on record, with large parts of the world suffering from severe heat waves and wildfires.  Despite all this, however, a stretch of the North Atlantic below Iceland and Greenland is experiencing all-time cold temperatures, according to the National Oceanic and Atmospheric Administration.  What explains this anomaly?  According to scientists from the Potsdam Institute for Climate Impact Research and Pennsylvania State University, among other institutions, the most likely explanation is the arrival in the area of cold water from the Greenland ice sheet that is melting ever more rapidly thanks to climate change.  Because this meltwater starts out salt-free, it has remained near the surface and so, as predicted, is slowing the northern advance of warmer water from the North Atlantic Current.

So far, the AMOC has not suffered a dramatic shutdown, but it is slowing, and scientists worry that a rapid increase in Greenland ice melt as the Arctic continues to warm will pour ever more meltwater into the North Atlantic, severely disrupting the conveyor system.  That would, indeed, constitute a major tipping point, with severe consequences for Europe and eastern North America.  Not only would Europe experience colder temperatures on an otherwise warmer planet, but coastal North America could witness higher sea levels than those predicted from climate change alone because the Gulf Stream tends to pull sea water away from the eastern U.S. and push it toward Europe.  If it were to fail, rising sea levels could endanger cities like New York and Boston.  Indeed, scientists discovered that just such a slowing of the AMOC helped produce a sea-level rise of four inches from New York to Newfoundland in 2009 and 2010.

In its 2014 report on the status of global warming, the IPCC indicated that the likelihood of the AMOC collapsing before the end of this century remains relatively low.  But some studies suggest that the conveyor system is already 15%-20% below normal with Greenland’s melting still in an early stage.  Once that process switches into high gear, the potential for the sort of breakdown that was once science fiction starts to look all too real.

Tipping Points on the Horizon

In a 2014 report, “Impacts, Adaptation, and Vulnerability,” Working Group II of the IPCC identified three other natural systems already showing early-warning signs of catastrophic tipping points: the Arctic, coral reefs, and the Amazonian forest.  All three, the report suggested, could experience massive and irreversible changes with profound implications for human societies.

The Arctic comes in for particular scrutiny because it has experienced more warming than any other region on the planet and because the impact of climate change there is already so obvious.  As the report put it, “For the Arctic region, new evidence indicates a biophysical regime shift is taking place, with cascading impacts on physical systems, ecosystems, and human livelihoods.”

This has begun with a massive melt of sea ice in the region and a resulting threat to native marine species.  “For Arctic marine biota,” the report notes, “the rapid reduction of summer ice covers causes a tipping element that is now severely affecting pelagic [sub-surface] ecosystems as well as ice-dependent mammals such as seals and polar bears.”  Other flora and fauna of the Arctic biome are also demonstrating stress related to climate change.  For example, vast areas of tundra are being invaded by shrubs and small trees, decimating the habitats of some animal species and increasing the risk of fires.

This Arctic “regime shift” affects many other aspects of the ecosystem as well.  Higher temperatures, for instance, have meant widespread thawing and melting of permafrost, the frozen soil and water that undergirds much of the Arctic landmass.  In this lies another possible tipping-point danger, since frozen soils contain more than twice the carbon now present in the atmosphere.  As the permafrost melts, some of this carbon is released in the form of methane, a potent greenhouse gas with many times the warming potential of carbon dioxide and other such gases.  In other words, as the IPCC noted, any significant melting of Arctic permafrost will “create a potentially strong positive feedback to accelerate Arctic (and global) warming.”  This, in fact, could prove to be more than a tipping point.  It could be a planetary catastrophe.

Along with these biophysical effects, the warming of the Arctic is threatening the livelihoods and lifestyles of the indigenous peoples of the region.  The loss of summer sea ice, for example, has endangered the marine species on which many such communities depend for food and the preservation of their cultural traditions.  Meanwhile, melting permafrost and coastal erosion due to sea-level rise have threatened the very existence of their coastal villages.  In September, President Obama visited Kotzebue, a village in Alaska some 30 miles above the Arctic Circle that could disappear as a result of melting permafrost, rising sea levels, and ever bigger storm surges.

Coral Reefs at Risk

Another crucial ecosystem that’s showing signs of heading toward an irreversible tipping point is the world’s constellation of coral reefs.  Remarkably enough, although such reefs make up less than 1% of the Earth’s surface area, they house up to 25% of all marine life.  They are, that is, essential for both the health of the oceans and of fishing communities, as well as of those who depend on fish for a significant part of their diet.  According to one estimate, some 850 million people rely on coral reefs for their food security.

Corals, which are colonies of tiny animals related to sea anemones, have proven highly sensitive to changes in the acidity and temperature of their surrounding waters, both of which are rising due to the absorption of excess carbon dioxide from the atmosphere.  As a result, in a visually dramatic process called “bleaching,” coral populations have been dying out globally.  According to a recent study by the Worldwide Fund for Nature, coral reef extent has declined by 50% in the last 30 years and all reefs could disappear as early as 2050 if current rates of ocean warming and acidification continue.

“This irreversible loss of biodiversity,” reports the IPCC, will have “significant consequences for regional marine ecosystems as well as the human livelihoods that depend on them.”  Indeed, the growing evidence of such losses “strengthens the conclusion that increased mass bleaching of corals constitutes a strong warning signal for the singular event that would constitute the irreversible loss of an entire biome.”

Amazonian Dry-Out

The Amazon has long been viewed as the epitome of a tropical rainforest, with extraordinary plant and animal diversity.  The Amazonian tree cover also plays a vital role in reducing the pace of global warming by absorbing vast amounts of carbon dioxide from the atmosphere during the process of photosynthesis.  For years, however, the Amazon has been increasingly devastated by a process of deforestation, as settlers from Brazil’s coastal regions clear land for farming and ranching, and loggers (many operating illegally) harvest timber for wood products.  Now, as if to add insult to injury, the region faces a new threat from climate change: tree mortality due to a rise in severe drought and the increased forest fire risk that accompanies it.

Although it can rain year-round in the Amazon region, there is a distinct wet season with heavy rainfall and a dry season with much less of it.  An extended dry season with little rain can endanger the survival of many trees and increase the risk of wildfires.  Research conducted by scientists at the University of Texas has found that the dry season in the southern Amazonian region has grown by a week every decade since 1980 while the annual fire season has lengthened.  “The dry season over the southern Amazon is already marginal for maintaining rainforest,” says Rong Fu, the leader of the research team. “At some point, if it becomes too long, the rainforest will reach a tipping point” and disappear.

Because the Amazon harbors perhaps the largest array of distinctive flora and fauna on the planet, its loss would represent an irreversible blow to global biodiversity.  In addition, the region hosts some of the largest assemblages of indigenous peoples still practicing their traditional ways of life.  Even if their lives were saved (through relocation to urban slums or government encampments), the loss of their cultures, representing thousands of years of adaptation to a demanding environment, would be a blow for all humankind.

As in the case of the Arctic and coral reefs, the collapse of the Amazon will have what the IPCC terms “cascading impacts,” devastating ecosystems, diminishing biodiversity, and destroying the ways of life of indigenous peoples.  Worse yet, as with the melting of the Arctic, so the drying-out of Amazonia is likely to feed into climate change, heightening its intensity and so sparking yet more tipping points on a planet increasingly close to the brink.

In its report, the IPCC, whose analysis tends, if anything, to be on the conservative side of climate science, indicated that the Amazon faced a relatively low risk of dying out by 2100.  However, a 2009 study conducted by Britain’s famed Meteorological (Met) Office suggests that the risk is far greater than previously assumed.  Even if global temperatures were to be held to an increase of 2 degrees Celsius, the study notes, as much as 40% of the Amazon would perish within a century; with 3 degrees of warming, up to 75% would vanish; and with 4 degrees, 85% would die.  “The forest as we know it would effectively be gone,” said Met researcher Vicky Pope.

Of Tipping Points and Singularities

These four natural systems are by no means the only ones that could face devastating tipping points in the years to come.  The IPCC report and other scientific studies hint at further biomes that show early signs of potential catastrophe.  But these four are sufficiently advanced to tell us that we need to look at climate change in a new way: not as a slow, linear process to which we can adapt over time, but as a non-linear set of events involving dramatic and irreversible changes to the global ecosphere.

The difference is critical: linear change gives us the luxury of time to devise and implement curbs on greenhouse gas emissions, and to construct protective measures such as sea walls.  Non-linear change puts a crimp on time and confronts us with the possibility of relatively sudden, devastating climate shifts against which no defensive measures can protect us.

Were the Atlantic Meridional Overturning Circulation to fail, for example, there would be nothing we could do to turn it back on, nor would we be able to recreate coral reefs or resurrect the Amazon.  Add in one other factor: when natural systems of this magnitude fail, should we not expect human systems to fail as well?  No one can answer this question with certainty, but we do know that earlier human societies collapsed when faced with other kinds of profound changes in climate.

All of this should be on the minds of delegates to the upcoming climate summit in Paris, a meeting focused on adopting an international set of restrictions on greenhouse gas emissions. Each participating nation is obliged to submit a set of measures it is ready to take, known as “intended nationally determined contributions,” or INDCs, aimed at achieving the overall goal of preventing planetary warming from exceeding 2 degrees Celsius.  However, the INDCs submitted to date, including those from the United States and China, suggest a distinctly incremental approach to the problem.  Unfortunately, if planetary tipping points are in our future, this mindset will not measure up.  It’s time to start thinking instead in terms of civilizational survival.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education FoundationFollow him on Twitter at @mklare1.

Copyright 2015 Michael T. Klare

Welcome to a New Planet

The plunge of global oil prices began in June 2014, when benchmark Brent crude was selling at $114 per barrel. It hit bottom at $46 this January, a near-collapse widely viewed as a major but temporary calamity for the energy industry.  Such low prices were expected to force many high-cost operators, especially American shale oil producers, out of the market, while stoking fresh demand and so pushing those numbers back up again.  When Brent rose to $66 per barrel this May, many oil industry executives breathed a sigh of relief.  The worst was over.  The price had “reached a bottom” and it “doesn’t look like it is going back,” a senior Saudi official observed at the time.

Skip ahead three months and that springtime of optimism has evaporated.  Major producers continue to pump out record levels of crude and world demand remains essentially flat. The result: a global oil glut that is again driving prices toward the energy subbasement.  In the first week of August, Brent fell to $49, and West Texas Intermediate, the benchmark for U.S. crude, sank to $45. On top of last winter’s rout, this second round of price declines has played havoc with the profits of the major oil companies, put tens of thousands of people out of work, and obliterated billions of dollars of investments in future projects. While most oil-company executives continue to insist that a turnaround is sure to occur in the near future, some analysts are beginning to wonder if what’s underway doesn’t actually signal a fundamental transformation of the industry.

Recently, as if to underscore the magnitude of the current rout, ExxonMobil and Chevron, the top two U.S. oil producers, announced their worst quarterly returns in many years.  Exxon, America’s largest oil company and normally one of its most profitable, reported a 52% drop in earnings for the second quarter of 2015.  Chevron suffered an even deeper plunge, with net income falling 90% from the second quarter of 2014.  In response, both companies have cut spending on exploration and production (“upstream” operations, in oil industry lingo).  Chevron also announced plans to eliminate 1,500 jobs.

Painful as the short-term consequences of the current price rout may be, the long-term ones are likely to prove far more significant.  To conserve funds and ensure continuing profitability, the major companies are cancelling or postponing investments in new production ventures, especially complex, costly projects like the exploitation of Canadian tar sands and deep-offshore fields that only turn a profit when oil is selling at $80 to $100 or more per barrel.

According to Wood Mackenzie, an oil-industry consultancy, the top firms have already shelved $200 billion worth of spending on new projects, including 46 major oil and natural gas ventures containing an estimated 20 billion barrels of oil or its equivalent.  Most of these are in Canada’s Athabasca tar sands (also called oil sands) or in deep waters off the west coast of Africa.  Royal Dutch Shell has postponed its Bonga South West project, a proposed $12 billion development in the Atlantic Ocean off the coast of Nigeria, while the French company Total has delayed a final investment decision on Zinia 2, a field it had planned to exploit off the coast of Angola.  “The upstream industry is winding back its investment in big pre-final investment decision developments as fast as it can,” Wood Mackenziereported in July.

As the price of oil continues on its downward course, the cancellation or postponement of such mega-projects has been sending powerful shock waves through the energy industry, and also ancillary industries, communities, and countries that depend on oil extraction for the bulk of their revenues. Consider it a straw in the wind that, in February, Halliburton, a major oil-services provider, announced layoffs of 7% of its work force, or about 6,000 people.  Other firms have announced equivalent reductions.

Such layoffs are, of course, impacting whole communities.  For instance, Fort McMurray in Alberta, Canada, the epicenter of the tar sands industry and not so long ago a boom town, has seen its unemployment rate double over the past year and public spending slashed.  Families that once enjoyed six-digit annual incomes are now turning to community food banks for essential supplies.  “In a very short time our world has changed, and changed dramatically,” observes Rich Kruger, chief executive of Imperial Oil, an Exxon subsidiary and major investor in Alberta’s tar sands.

A similar effect can be seen on a far larger scale when it comes to oil-centric countries like Russia, Nigeria, and Venezuela.  All three are highly dependent on oil exports for government operations.  Russia’s government relies on its oil and gas industry for 50% of its budget revenues, Nigeria for 75%, and Venezuela for 45%.  All three have experienced sharp drops in oil income.  The resulting diminished government spending has meant economic hardship, especially for the poor and marginalized, and prompted increased civil unrest.  In Russia, President Vladimir Putin has clearly sought to deflect attention from the social impact of reduced oil revenue by ­whipping up patriotic fervor about the country’s military involvement in Ukraine.  Russia’s actions have, however, provoked Western economic sanctions, only adding to its economic and social woes.

No Relief in Sight

What are we to make of this unexpected second fall in oil prices?  Could we, in fact, be witnessing a fundamental shift in the energy industry?  To answer either of these questions, consider why prices first fell in 2014 and why, at the time, analysts believed they would rebound by the middle of this year.

The initial collapse was widely attributed to three critical factors: an extraordinary surge in production from shale formations in the United States, continued high output by members of the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia, and a slackening of demand from major consuming nations, especially China.

According to the Energy Information Administration of the Department of Energy, crude oil production in the United States took aleap from 5.6 million barrels per day in June 2011 to 8.7 million barrels in June 2014, a mind-boggling increase of 55% in just three years.  The addition of so much new oil to global markets — thanks in large part to the introduction of fracking technology in America’s western energy fields — occurred just as China’s economy (and so its demand for oil) was slowing, undoubtedly provoking the initial price slide.  Brent crude went from $114 to $84 per barrel, a drop of 36% between June and October 2014.

Historically, OPEC has responded to such declines by scaling back production by its member states, and so effectively shoring up prices.  This time, however, the organization, which met in Vienna last November, elected to maintain production at current levels, ensuring a global oil glut.  Not surprisingly, in the weeks after the meeting, Brent prices went into free fall, ending up at $55 per barrel on the last day of 2014.

Most industry analysts assumed that the Persian Gulf states, led by Saudi Arabia, were simply willing to absorb a temporary loss of income to force the collapse of U.S. shale operators and other emerging competitors, including tar sands operations in Canada and deep-offshore ventures in Africa and Brazil.  A senior Saudi official seemed to confirm this in May, telling the Financial Times, “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including U.S. shale, deep offshore, and heavy oils.”

Believing that the Saudi strategy had succeeded and noting signs of increasing energy demand in China, Europe, and the United States, many analysts concluded that prices would soon begin to rise again, as indeed they briefly did.  It now appears, however, that these assumptions were off the mark.  While numerous high-cost projects in Canada and Africa were delayed or cancelled, the U.S. shale industry has found ways to weather the downturn in prices.  Some less-productive wells have indeed been abandoned, but drillers also developed techniques to extract more oil less expensively from their remaining wells and kept right on pumping.  “We can’t control commodity prices, but we can control the efficiency of our wells,” said one operator in the Eagle Ford region of Texas.  “The industry has taken this as a wake-up call to get more efficient or get out.”

Responding to the challenge, the Saudis ramped up production, achieving a record 10.3 million barrels per day in May 2014.  Other OPEC members similarly increased their output and, to the surprise of many, the Iraqi oil industry achieved unexpected production highs, despite the country’s growing internal disorder.  Meanwhile, with economic sanctions on Iran expected to ease in the wake of its nuclear deal with the U.S., China, France, Russia, England, and Germany, that country’s energy industry is soon likely to begin gearing up to add to global supply in a significant way.

With ever more oil entering the market and a future seeded with yet more of the same, only an unlikely major boost in demand could halt a further price drop.  Although American consumers are driving more and buying bigger vehicles in response to lower gas prices, Europe shows few signs of recovery from its present austerity moment, and China, following a catastrophic stock market contraction in June, is in no position to take up the slack.  Put it all together and the prognosis seems inescapable: low oil prices for the foreseeable future.

A Whole New Ballgame?

Big Energy is doing its best to remain optimistic about the situation, believing a turnaround is inevitable. “Globally in the industry $130 billion of projects have been delayed, deferred, or cancelled,” Bod Dudley, chief executive of BP, commented in June.  “That’s going to have an impact down the road.”

But what if we’ve entered a new period in which supply just keeps expanding while demand fails to take off?  For one thing, there’s no evidence that the shale and fracking revolution that has turned the U.S. into “Saudi America” will collapse any time soon.  Although some smaller operators may be driven out of business, those capable of embracing the newest cost-cutting technologies are likely to keep pumping out shale oil even in a low-price environment.

Meanwhile, there’s Iran and Iraq to take into account.  Those two countries are desperate for infusions of new income and possess some of the planet’s largest reserves of untapped petroleum.  Over the decades, both have been ravaged by war and sanctions, but their energy industries are now poised for significant growth.  To the surprise of analysts, Iraqi production rose from 2.4 million barrels per day in 2010 to 4 million barrels this summer.  Some experts are convinced that by 2020 total output, including from the country’s semiautonomous Kurdistan region, could more than double to 9 million barrels.  Of course, continued fighting in Iraq, which has already lost major cities in the north to the Islamic State and its new “caliphate,” could quickly undermine such expectations.  Still, through years of chaos, civil war, and insurgency, the Iraqi energy industry has proven remarkably resilient and adept first at sustaining and then boosting its output.

Iran’s once mighty oil industry, crippled by fierce economic sanctions, has suffered from a lack of access to advanced Western drilling technology.  At about 2.8 million barrels per day in 2014, its crude oil production remains far below levels experts believe would be easily attainable if modern technology were brought to bear.  Once the Iran nuclear deal is approved — by the Europeans, Russians, and Chinese, even if the U.S. Congress shoots it down — and most sanctions lifted, Western companies are likely to flock back into the country, providing the necessary new oil technology and knowhow in return for access to its massive energy reserves.  While this wouldn’t happen overnight — it takes time to restore a dilapidated energy infrastructure — output could rise by one million barrels per day within a year, and considerably more after that.

All in all, then, global oil production remains on an upward trajectory.  What, then, of demand?  On this score, the situation in China will prove critical.   That country has, after all, been the main source of new oil demand since the start of this century.  According to BP, oil consumption in China rose from 6.7 million barrels per day in 2004 to 11.1 million barrels in 2014.  As domestic production only amounts to about 4 million barrels per day, all of those additional barrels represented imported energy.  If you want a major explanation for the pre-2014 rise in the price of oil, rapid Chinese growth — and expectations that its spurt in consumption would continue into the indefinite future — is it.

Woe, then, to the $100 barrel of oil, since that country’s economy has been cooling off since 2014 and its growth is projected to fall below 7% this year, the lowest rate in decades.  This means, in turn, less demand for extra oil.  China’s consumption rose only 300,000 barrels per day in 2014 and is expected to remain sluggish for years to come.  “[T]he likelihood now is that import growth will be minimal for the next two or three years,” energy expert Nick Butler of the Financial Times observed.  “That in turn will compound and extend the existing surplus of supply over demand.”

Finally, don’t forget the Paris climate summit this December.  Although no one yet knows what, if anything, it will accomplish, dozens of countries have already submitted preliminary plans for the steps they will pledge to take to reduce their carbon emissions.  These include, for example, tax breaks and other incentives for those acquiring hybrid and electric-powered cars, along with increased taxes on oil and other forms of carbon consumption.  Should such measures begin to kick in, demand for oil will take another hit and conceivably its use will actually drop years before supplies become scarce.

Winners and Losers

The initial near collapse of oil prices caused considerable pain and disarray in the oil industry.  If this second rout continues for any length of time, it will undoubtedly produce even more severe and unpredictable consequences. Some outcomes already appear likely: energy companies that cannot lower their costs will be driven out of business or absorbed by other firms, while investment in costly, “unconventional” projects like Canadian tar sands, ultra-deep Atlantic fields, and Arctic oil will largely disappear.  Most of the giant oil companies will undoubtedly survive, but possibly in downsized form or as part of merged enterprises.

All of this is bad news for Big Energy, but unexpectedly good news for the planet. As a start, those “unconventional” projects like tar sands require more energy to extract oil than conventional fields, which means a greater release of carbon dioxide into the atmosphere. Heavier oils like tar sands and Venezuelan extra-heavy crude also contain more carbon than do lighter fuels and so emit more carbon dioxide when consumed. If, in addition, global oil consumption slows or begins to contract, that, too, would obviously reduce carbon dioxide emissions, slowing the present daunting pace of climate change.

Most of us are used to following the ups and downs of the Dow Jones Industrial Average as a shorthand gauge for the state of the world economy.  However, following the ups and downs of the price of Brent crude may, in the end, tell us far more about world affairs on our endangered planet.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education FoundationFollow him on Twitter at @mklare1.

Copyright 2015 Michael T. Klare

Double-Dip Oil Rout