The Work Now Before Us: Bracing for Cheaper World Oil Prices

© 2009

By

Blaine D. Pope, Ph.D.

High grade Iraqi oil looks like it will soon be entering the world market, in large volume, in the near future. We should therefore “brace ourselves” for temporarily cheaper oil prices in 2010. This could be problematic.

Why do I say it this way?

Historically, since the energy crisis of the 1970s, efforts at conservation have often evaporated when energy prices have gone down. Those of us who are aware of how fragile our current energy supply chain has now become should therefore remain vigilant. Many may begin to argue that the long-term crisis has abated. Nothing could be further from the truth.

We cannot afford a repeat of the “tragedy” of the 1980s, when oil prices temporarily dropped (in the wake of North Sea and Alaska fields coming on line, together will Saudi Arabia increasing its production, injecting cheap petroleum on the world market, resulting in collapsing world oil prices, and tipping the export-dependent economy of the USSR over the brink). At that time, OECD countries essentially dropped and/or mothballed plans at restructuring their economies for a lower carbon footprint (the purpose for which the International Energy Agency [IEA] was originally created). Relatively cheap oil eventually led to relatively cheap commodities, including cheap money-as-credit. This was a significant part of the foundation of the economic neoliberal movement, characterized by Reagan in the US, and Thatcher in the UK. Much of the so-called “tax-and-spend” philosophy of welfare state capitalism was gradually swept aside, in favor of a covert “borrow-and-spend” philosophy of corporatist state capitalism (ironically contributing to the economic rise in stature of the government of Communist China, through its credit instruments for the US).

But if this new foundation for the US economy was built during Reagan’s time, the “Mc Mansion” built on top of that foundation was finally erected during Clinton’s time. Financial de-regulation went into high gear, domestically and globally, during the 1990s. Most of us in the West now realize how that tragic story has ended (people in the Third World, of course, had been aware of many of these tragic issues much earlier). Most of the economic bubbles we created have now burst.

Today, in the wake of extremely high oil prices (let us not forget the painful summer of 2008) many OECD and EU countries are once again feeling the effects of a slow-onset economic crisis. As I type these very lines, reports from BBC TV depict UK and Irish governments enacting severe economic austerity measures (in the case of Ireland, it is reported as “the most severe in the nation’s history”). Greece is becoming politically very unstable, and is in the midst of violent protests, and France has been subject to on-going protests by farmers and truck drivers.

Here in the US, the long-term economic collapse of the old order and the concomitant restructuring needed for a new order (as yet not clearly defined, but which will “have” to come about if the country is to move forward) is already well underway. In all this confusion and pain, of course, there is also the usual social scapegoating. Racial, national, ethnic, and class tensions become exacerbated, as human beings compete for diminishing resources. Crimes of desperation also increase. False prophets abound (e.g., Bernard Madoff, the Bush Administration, Allan Greenspan and the Fed—to name but a few). This process of change is not a comfortable process, by any means.

During times of upheaval, times of great change, times of revolutionary change, competing interest groups in societies can typically be broken out into three simple categories: 1) those who favor the change and push for it; 2) those who opposed the change and act as obstacles to it; and 3) those in the middle who are either not sure of what to do, or are simply too ignorant and/or too ambivalent regarding the situation to meaningfully address it. We can see this pattern in terms of the current climate debate in the US. (And we can also clearly see it in the US health care / health insurance debate!)

I maintain that our current economic instability has, at its roots, the energetic resource instability we’ve been experiencing, over the past 35 years—especially in terms of petroleum supplies. We have become addicted to petroleum, which has evolved into the alpha and omega of modern, western living. This has been both a blessing and a curse. And, lest we forget, there are now a number of powerful interest groups which have evolved over time, vested in maintaining the current petroleum supply and commodity chains as they are.

We who are aware of these long-term energy-economic challenges shall have to brace ourselves.

We should not let 2010 be a repeat of the early 1980s. We should not allow society to fall asleep again, this time. The stakes are much higher now. Over the past three decades, we have been gradually spending more and more money only find and extract less and less oil from the Earth. This translates into higher prices—for everything, including the price of money (as price inflation).

This is the difficult and often not-discussed reality that we face. It’s a good news / bad news scenario, however.

The good news is that we have plenty of viable energy alternatives. The bad news is that none of them will be cheap to develop or simple to deploy on a large scale. How we choose to go about all of this will be key, of course. The role of human psychology should not be under-estimated. Let us focus on the good news, while being mindful of the bad. To paraphrase the Italian social scientist, Gramsci, “Let us maintain an optimism of the spirit, even as we maintain a pessimism of the intellect.”

The work that we have to do to restructure the “commanding heights” of both the US economy and the global economy is becoming increasingly clear. We have to restructure it for reduced carbon footprints, and reduced material through-puts. The days of US-centered (and western-centered) hyper-consumption are now drawing to a close. Deep down inside, inside our collective consciousness, many of us in the west now sense this.

It can feel quite daunting, actually.

But let us not give in to panic or despair. We must recognize that we are, collectively, grieving a kind of loss. We are grieving the end of a lifestyle, the end of an era. But let us also recognize the grief cycle for what it is, and begin to meander our way through it. Let us gather ourselves up, and face our collective grief as well as our collective future with Gramsci’s “optimism of the spirit”—otherwise known as courage. It is that courage that our grandchildren will ultimately note, ultimately remember, and ultimately have to hold on to, as they face the world we’ve created for them.

Blaine