Casaubon's Book

The phrase “oil shock” is being thrown around a lot in the national news, and events in Tripoli at the moment seem to be reinforcing the idea that we’re facing an extended period of instability, and possibly a new cycle of oil price increases and the stress on personal and public economies that accompany rising prices.

Is this a given? No, but there are similarities here to prior experience. The most important point is that while everyone notes that Libyan oil is less than 2% of world consumption, that supply constraints don’t have to be significant, or even present in order to cause a crisis. Think about the last few oil shocks. In 2008, oil prices spiked to $147 barrrel during a period of no significant supply constraints – instead, rising Chinese demand and a growing economy banged up against Saudi inability (they call it unwillingness, but let’s be honest, when was the last time anyone was getting record prices for their product ad said “hey, we don’t really want to make that much money.”) to increase production, but there was no major supply constraint at all.

The 1970s oil shocks did come with actual supply constraints – but comparatively small ones, a matter of 5% in total reduced availability for the 1973 crisis and less still for the second cycle of oil shocks. Those enough old enough have at least vague memories of car seats and gas lines, but it is worth reminding yourself that even though objectively there was more than 5% waste in the system, a very small oil shock had very big economic and social ripples. To give a more extreme example, the state of Cuba’s “special period” was brought about by no more than a 20% supply disruption – not the 50% often stated.

Which is important – objectively speaking, a society should be able to cut 5% of its oil use no problem, right? Any of us can see how it could happen. Even 20% isn’t that challenging, right? There’s plenty of wiggle room in the system – plenty of cuts in air travel, driving, heating, and other uses of oil that could be made. Any one of us, engaged in an intellectual exercise, could come up with compelling ways to minimize the effects, right?

So why doesn’t it work that way? Why, for example, when you have a usefully totalitarian leadership like Cuba, can’t you just order people to conserve in the most optimal ways? Why would the average Cuban lose 20lbs? Why were the 70s oil shocks an ongoing economic crisis? Why was 5% so hard to endure? And more importantly, why is a small percentage of oil going offline going to teach us a lot about how vulnerable we are? Libya’s less than 2% of world oil, combined with Algeria’s 2.5%…well, we’re getting close to the 1970s.

What we have learned from past oil shocks (which few people outside the peak oil community have chosen to recognize) is pretty clear and simple – that the effect of oil on the economy, on individual lives, on the world as a whole is dramatically greater than can be expected by a direct arithmetical progression – that is, the effect of oil on whole systems is something like a geometric progression, increasing in complexity and impact well beyond what one would intuitively expect.

What we’ve also learned is that what seems obvious isn’t – that is, wise strategies for management don’t always emerge without good advance planning. Thus the gas lines (which were at least part a symptom of poorly planned government responses), the recipes for fried grapefruit peel, etc… Even with good advance planning, shocks would be felt, but they can manifestly be made worse by inadequate response.

Remember, too, that the oil shocks of the 1970s caused an early shock when oil prise rose to the stunning heights of the contemporary equivalent of $75 barrel, and began in a period of economic growth. Consider the way the impact is likely to affect us now, either in the beginnings of a recovery (maybe) or still in a shaky soft spot of a recession (depending on your preferential narrative) with stable oil prices above $80 barrel.

What will we learn from another oil shock? In the long term, maybe nothing – that’s probably the net of what we learned from the 1970s oil shocks, and in a matter of 2-3 years, people seemed to forget even about the 2007-2008 oil and food price shock. In the short term, we’re going to learn a lot about ourselves – we’ll see that we can actually use a lot less energy (energy consumption drops during economic and energy crises) and we’ll also see that we have a tough time distributing those shifts in ways that aren’t economically difficult and personally destructive to a lot of people.

Sharon

Comments

  1. #1 rork
    February 25, 2011

    “Any one of us, engaged in an intellectual exercise, could come up with compelling ways to minimize the effects, right?”
    Does this presume reader is supposed to know what solutions you would offer? Being a less than constant reader, I don’t, but I sure would have appreciated you getting to the point of talking about that. By the end you saying it would be tough I think.

    It’s like a never-ending-story.
    I was a teenager in the 70s. We figured green taxes of some type were needed to make the price of oil reflect the true costs of burning it, and perhaps then some. Otherwise we’d get bad agriculture, bad land use, bad urban planning, poor efficiency. That never happened. At least not in the US. Why? We could try to get onboard now, but the number of winners and losers is greater than it would have been in 1980, and I imagine leaders asking this will not be elected. Democracy in the US is not famous for long-range vision lately.
    The thing that I always loathed is calls for the people to conserve, just from their concern. I comply, but that’s so trivial compared to motivating everyone via the money.

  2. #2 rork
    February 25, 2011

    Clarify: It’s the green taxes that never happened. The bad stuff did happen.

  3. #3 et
    February 25, 2011

    The reason we don’t learn? More and more I’m thinking its the worst parts of human nature – short-sightedness, greed, unwillingness to downsize, personal destruction is okay as long as it happens to “other people”.

    Sharon: why do you think we don’t learn?

  4. #4 guthrie
    February 25, 2011

    I was under the impression that we use oil more efficiently now (well, perhaps outside the US automotive sector) than back in the 70′s, hence why things havn’t gone totally pear shaped even although prices are higher than then.

    High oil prices also apparently precede unemployment, so it will be rather unpleasant in the next year or two:
    http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/

  5. #5 Juice
    February 25, 2011

    objectively speaking, a society should be able to cut 5% of its oil use no problem, right? Any of us can see how it could happen. Even 20% isn’t that challenging, right? There’s plenty of wiggle room in the system – plenty of cuts in air travel, driving, heating, and other uses of oil that could be made.

    When you stop spending your money people lose their jobs and stop spending money, etc.

  6. #6 Gary Rondeau
    February 25, 2011

    Sharon, excellent points.
    The way I look at the 1970′s oil shocks is that they did change our collective behavior. Prior to that time our per capita economic growth was almost proportional to our energy consumption. Since then, growth had continued (all be it more slowly) and energy consumption has been flat. But the the strain of continuing per captia growth has been large. Without being able to throw more oil at the economy, capitalists blow financial bubbles and exploit our domestic reserves of wealth (housing). The next oil shock will cement the uncertainty of our uneasy relationships as an oil importer. The pain will indeeds be harsh.
    As much as I don’t want it to be, we are seeing the expected “ratcheting downward” that is required to come into equilibrium with our natural limits. John Greer speaks of catabolic collapse happening in stages. He put the start of this process for the U.S. in 1974 with the first oil shocks. The bursting of the housing bubble and resulting financial crisis gave those with a more traditional view of economic growth a simple explanation for the depressing events we are currently in the midst of. But, another oil crisis will crystallize our dilemma.

  7. #7 Sharon Astyk
    February 25, 2011

    Rork, I have written about this many times – in fact, my family uses 80% less oil than the average household in the US. The point is that a 5% cut is objectively easy – limiting all optional car and plane trips would get you better than that. The problem is that that’s an almost impossible thing to enforce without a strong degree of collective organization and advance planning we don’t have.

    Guthrie, we do use oil more efficiently in most sectors of the economy than we did in the 1970s, but we use more oil in the net because we consume more in general. So any given use has declined in oil intensity (with a couple of important exceptions, the biggest of which is food, which uses oil more intensively), but total use has risen.

    Sharon

  8. #8 Stephen B.
    February 25, 2011

    I’m between things with students here and I haven’t read this blog entry in its entirety yet, but let me say this: to me it just doesn’t feel as if the world, or at least the US economy has sufficiently recovered yet from the last shock two years ago to support another major gasoline and oil price run up here and now. That is, I think the economy will get ill pretty fast even on gasoline in the high $3s, never mind $5s or $6s that some folks are talking about. Hand in hand with this, I think demand will come in at even a moderate price increase and fairly quickly at that to keep world demand in line with faltering production. Of course, there’s always the speculators and their games too to add into the market mix.

    I also get the feeling that more and more people are getting the idea of what Peak Oil is and that we’re now past the peak, even if they can’t or won’t actually articulate it to other folks in conversation. It’s becoming the unspoken, but implicitly acknowledged truth at least somewhat more than before.

  9. #9 Ahcuah
    February 25, 2011

    “The most important point is that while everyone notes that Libyan oil is less than 2% of world consumption, that supply constraints don’t have to be significant, or even present in order to cause a crisis.”

    Particularly when the oil companies use that excuse to jump gasoline prices by $0.40. Maybe it’s not that such a minor shortfall really makes a difference, but that the conspirators can get away with crap.

  10. #10 dmabius
    February 25, 2011

    SH*THEADS

    atheistthinktank.net/thinktank/index.php?topic=9870

  11. #11 Stephen B.
    February 25, 2011

    And just to be clear on one difference between now and the 1970s crisis….then we had price controls at the wholesale level on crude oil and lots of ordering around of supply by the government. Thus we had rationing by time (people standing in line) rather than by pure price as we saw in 2008. Either way we get rationing, however.

  12. #12 Kyle
    February 26, 2011

    ” To give a more extreme example, the state of Cuba’s “special period” was brought about by no more than a 20% supply disruption – not the 50% often stated.”

    Actually, what really hurt them was not the loss of the oil itself. I explored this in an article a couple of years ago here.

    Essentially Cuba had focused on producing sugar and tobacco for export, importing everything else. When the trade with the USSR disappeared along with the USSR, they were stuck. When you don’t produce all the stuff you need and nobody will sell it to you, you’re in trouble.

    As for oil, like many Third World countries a lot of what Cuba used was for electricity. It’s a lot easier to drive less than have blackouts.

    In my conclusion the “lessons learned” were,

    - having your country produce just a few things and importing everything else leaves it vulnerable to disruptions in global trade and supply
    - these disruptions can drop in for a surprise visit, they’re not easy to foresee and prepare against, if you wait until you hear the train coming before you get off the tracks you might get hit
    - people are naturally conservative, that is reluctant to change, but will change when it’s necessary to their survival. If given the chance, they’ll try to go back to the old way of doing things, mixed in somewhat with the new ways.
    - governments, insulated from day-to-day reality of common life, are more conservative still, but like the people will change when it’s necessary to their survival. Governments will at first get in the way, later get out of the way, and finally help and then claim it was their idea all along, If given the chance, they’ll try to go back entirely to the old way of doing things as soon as possible.
    - it is possible, though difficult (requiring greater labour and skill) to feed ourselves with very little or even no fossil fuel inputs
    - to get lots of money by exports requires large fossil fuel inputs

    I believe these lessons are still relevant today. The risk for the USA is not so much a drop in oil availability, but more a drop in China’s willingness to finance and supply the USA’s consumption of Chinese products.

  13. #13 Blogged It
    February 26, 2011

    well our country is going down the drains because of this one. Unlike some of the other countries we really don’t have that much oil reserve so our oil prices really tend to go up or down.

    if the predicted price of $200 per gallon will popup then our economy will really suffer.

    our gas now is ranging from $1 to $1.50 per liter and if it goes to $2 to $3 all hell will break lose

  14. #14 Blogged It
    February 26, 2011

    I just cant believe that i will suffer/experience the $200 per barrel in my young age.

    I just hope the increase of the saudi oil output will counter this.

  15. #15 Carl
    February 26, 2011

    I find my emotional energy is restored when I stop and contemplate my great-grandfather’s lifestyle circa 1870. His business was in NYC and the family farm was in NJ. He and his brother ultimately had 13 kids between them in school at one time, all ‘coming of age’ around the previous turn of the century. I was lucky enough to meet five of them while they were in their 70′s and 80′s (I was in my single digits.) They made it through ‘fevers’ and several major wars.

    We’re a pretty fierce species when we need to be, but we’re equally intelligent and loving and have so much more knowledge, particularly in the sciences, to work with. It isn’t all ‘doom and gloom.’

    regards,

    Carl

    p.s. Sharon, I’m Alex’s webmaster (he’s in Vancouver, I’m in Maine.) Please drop me a note. Thanks!

  16. #16 guthrie
    February 26, 2011

    Blogged it – the general view of peak oilers seems to be that Saudi Arabia is at its peak now and can’t really increase production more. Perhaps you mean Iraq? After all invading it and turning the oil fields over to modern western companies should lead to an increase in production?

  17. #17 george
    February 26, 2011

    america is a land full of too many piggies
    lmfao

  18. #18 v-boom
    February 26, 2011

    I just cant believe that i will suffer/experience the $200 per barrel in my young age.

    I just hope the increase of the saudi oil output will counter this.

  19. #19 orjin krem
    February 26, 2011

    Blogged it – the general view of peak oilers seems to be that Saudi Arabia is at its peak now and can’t really increase production more. Perhaps you mean Iraq? After all invading it and turning the oil fields over to modern western companies should lead to an increase in production?

  20. #20 altın çilek
    February 26, 2011

    I just cant believe that i will suffer/experience the $200 per barrel in my young age.

    I just hope the increase of the saudi oil output will counter this.

  21. #21 hcg damla
    February 26, 2011

    america is a land full of too many piggies
    lmfao

  22. #22 guthrie
    February 27, 2011

    The last three posts seem to be spam, repeating previous comments and attaching their website link in the name.