The Coming Oil Crisis Part II

Oil Shocks and the Economy
A Peak Oil crisis could occur virtually at any time and it will likely begin with an oil shock. Some think that we've already had our first one in the oil shock of 2008. For various reasons (war, terrorism, natural disaster) demand will outpace production. In the case of 2008 it was simply that world demand outpaced production as the US and Europe saw India and China began serious economic growth in oil based areas. Whatever the reason, it will drive up the price of oil which, as we have all seen, will cause the price of gasoline to jump. When it happened in 2008 we had just come off six of the most prosperous years in American history (in spite of what the Hobama tells us) and had several ways to get through it without too much disruption of our routine.

Historically an oil shock is followed by a recession and the worse the oil shock, the worse the recession. The first major oil shock came in the 1970s with the Yom Kippur War. War naturally disrupts trade but OPEC wanted to punish us for supporting Israel during the war and cut production. President Nixon compounded the problem by instituting price controls rather than allowing the price of gasoline to rise. Oil companies could no longer afford to refine gasoline and sell it at the control price which resulted in long lines at empty gas stations. OPECs 'embargo' quickly broke but the damage had been done and the US entered a deep recession. Actions by Nixon, Ford, and Carter (all Progressives to some degree by the way) worsened the recession and the US did not fully recover until 1984.

The next major oil shock took place in the 1990s when Saddam Hussein invaded Kuwait. Though prices then never reached close to what we pay daily now, the modest recession that followed Gulf War I was bad enough to get George HW Bush unelected.

Anatomy of a Peak Oil Crisis
As I stated before some of my sources believe that the 2008 oil shock is the first step in the ultimate Peak Oil crisis. Even though the government and MSM are proclaiming the recession over, most of us know that it isn't and a lengthy, deepening recession would only be the precursor to a Peak Oil crisis.

I could probably pontificate to near eternity on the possible scenarios that will arise after a Peak Oil crisis but will, for sake of brevity, limit myself to what I see as the best case, the middle case, and worst case.

Best case is simple. Some person or group discovers an alternate fuel source that is cheap to produce, abundant, and more efficient than oil. Oh and it has to be easy to convert from oil to the new fuel. That is a tall order considering that a single gallon of gasoline contains the energy equivalent of 200-500 hours of human labor depending on the activity. Should this happen, the only real dislocation will be the sudden end to the oil companies and the oil sheiks money stream. The sheiks will likely throw themselves fruitlessly at Israel and survivors will go back to 7th century Arab nomad culture and good riddance to them thank you very much.

The middle case is more complex. It assumes that the oil shock will lead to a steady but gradual decline in production. Industries will collapse and there will be pockets of high unemployment, hunger, and rioting. Famine will be an issue for those who can't cope and a period of general law through the gun will precede governments becoming more authoritarian in nature to curb the most serious problems. In the end the Middle Class will be all but gone as most people are forced to farm even the most marginally arable land. Since the US produces 60% of the world's food famine and disease will wipe out most of the under-developed world and nations with the resources to do so will fight over arable land in Africa and Asia to move their too large to sustain populations into. The least fortunate and least able to adjust everywhere will die off (to the delight of remaining academic leftists and enviro-wackos that have time to care). Other than militaries and the rich, modern convenience and travel will be little more than a memory. In the end most people will live a sort of odd mixture of 19th and 21st century life as the hour or two a day of electricity allows them a window to surf the net or listen to the radio.

Then there is the Apocalyptic version of the oil shock. This assumes that one day we will wake up and for whatever reason the oil spigot has gone virtually dry. The first few days would, like other disasters, be kind of surreal. Many neighbors would band together in a futile effort to 'get through it' and there would be much discussion of it over coffee and quiet friendly potlucks. But after a few days, the water might stop working, heating oil runs low or the gas line stops running, the food in the cupboards begins to run out and the stores are largely empty from hoarders or pockets of looting. The friendly neighbors start disbanding as they begin to look out for themselves and their families. Suddenly everyone is competing for resources that don't exist and societal collapse is imminent.

In addition, entire industries collapse overnight. People are out of jobs and money is worthless. Even assets like gold aren't going to be useful since no one will trade food for it. Your home is now a liability instead of an asset as you have to defend it against scavengers and bands looking for non-existent food. If you have petrol in your vehicle(s) they also become sources of contention. Civil rights are gone since hungry people don't care about free speech. Overwhelmed governments declare martial law but haven't the resources to keep the peace everywhere and many people die simply because they exist and are in someone else's way. Some will turn to cannibalism where food shortages are the most severe. Others will try to escape cities and towns to poach or, more likely, attempt steal from and kill rural inhabitants who tend to have modest food stores and means of defense. Famine and disease will become chronic. The modern world will cease to exist with horrors far beyond what the Black Death was like in Europe. Those who emerge from it will likely face a life that resembles the worst of the Dark Ages.

Okay, well that was pretty grim. I'm going to wrap this up in my next post. I believe there are some people preparing for the bad scenarios. Governments don't appear to be doing anything though there are some conspiracies out there that suggest they are - and none of it helpful. Then I will tell you what I think we should do to prepare for it.