The System Squeeze of Peak OilThe emergence of oil systems disruption as a method of choice for al Qaeda, isn't really a threat due to the potential damage caused by spikes in oil prices. Instead, its impact derives from its potential to exacerbate a global problem called peak oil (LATOC and The Oil Drum are great sources of info on the topic). Peak oil isn't making headlines (yet), but it is a very real problem. Simply put, it is analysis that demonstrates that we are on the cusp of running out of oil. Vice President Dick Cheney's presentation to the London Institute of Petroleum in the fall of 1999 sums up the exponential drivers of peak oil nicely:
By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves [from fields already producing oil]. That means by 2010 we will need on the order of an additional fifty million barrels a day.
Essentially, the dynamic Dick describes means that we need to replace 70% of existing daily production with new sources of liquid fuels every decade. The problem is that with each passing year the problem gets worse as both demand continues to increase (particularly as we bring China online) and depletion is calculated against a larger basis. Further, as the peak oil analysts argue, the depletion rate of existing fields may soon increase by up to eight percent as the mammoth fields (none of which have been found in 40 years) that provide bulk of the world's base production begin steep declines en masse (like we saw with with Mexico's Cantarell and Kuwait's Burgan last year). Ultimately, as is the case with all closed systems that exhibit exponential demand for finite resources, the need for replacement will eventually overwhelm the ability to produce it. The only debate is over when it will occur. Those estimates range from now (it has already occurred) to 2020, with the bulk of evidence pointing to an early emergence.
Accelerating the Shock
In pure economic terms, the shock of peak oil is likely to be difficult for the global community to bridge. There are few meaningful efforts underway at finding replacements for liquid fuels. Regardless, there is reason to hope that if we are given enough time, the transition can be made. However, the invasion of subsequent collapse of Iraq changed the equation. Any hope we had for a successful transition may now be dashed. Why? The inexorable mathematics of oil reserves tell us that in order to stave off peak oil, or at least slow its effects, there are only two producers that matter: Iraq and Saudi Arabia. All the other potential sources of production are either already in decline or too small to have much of an impact (the Alaskan north slope, the US Gulf of Mexico, Central Asia, etc.). In short, without smooth and rapidly increasing production in both Iraq and Saudi Arabia, we are in for an oil crunch the like of which we have never seen.
So far, the evidence is not looking good. Iraq has been the target of ongoing disruption since shortly after the invasion. These disruptions have kept oil production at or below prewar levels over the last three years. Further, ongoing economic failure and insecurity has made it impossible for Iraq to attract the investment it needs to ramp up production. The long lead time between investment in oil production and the subsequent output, means that any new contribution from Iraq will be off the table for at least a decade (or more) even if the intractable insurgency could be solved in the next five years. With Iraq in perpetual failure, any hope we have left is ensconced in Saudi Arabia, and that increasingly looks like a losing proposition. The chaos in Iraq will bleed into Saudi Arabia where global guerrillas will put to use their new techniques, as surely as the sun rises. Attacks on Abqaiq and Ras Turna are only the opening shots.Here's something to think about: A perennial question that often comes up is whether we would be better off with Saddam in power today, or not. If you look at it purely through the prism of peak oil, that is an easy question to answer: of course we would be. One thing we can count on from the kleptocracies in power in most oil producing states, is that they will pump the oil if given the chance. All we had to do with Saddam's Iraq is remove the sanctions to get the oil moving again. Our attempt to remove Saddam instead and replace him with a more friendly state created the worst of all possible worlds. An open source network of global guerrillas that have decimated Iraqi oil production and perhaps, in the not too distant future, Saudi Arabia's too.