[ppi] [ppiindia] The silent oil crisis

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**http://www.atimes.com/atimes/Global_Economy/GI30Dj01.html
Sep 30, 2005 
  

 
SPEAKING FREELY
The silent oil crisis
By James Howard 

Speaking Freely is an Asia Times Online feature that allows guest writers to 
have their say. Please click here if you are interested in contributing. 

Adjusted to modern-day prices, the historical record price for oil was US$80 as 
a result of the second 1970s oil crisis - a crisis brought about by political 
circumstances, not geological realities. Last month, the price for a barrel of 
oil passed $68, just $12 from that high. Lessons from history suggest that high 
oil prices mean bad news for the economy, our jobs and way of life. 

Yet analysts feared the worst when oil hit $30, then $40, then $50, and then 
$60. Somehow strong Western economies have shrugged these prices off and we are 
left asking whether anything has really changed for the major industrial 
economies so dependent on cheap oil. At present we do not seem to be in the 
same dire straits that the 1970s oil crises brought upon the world. 

Apart from an increase in the cost of raw materials and in filling up the 
automobile, resulting in stronger inflationary pressures, making us (the 
Western world) a little less well off, it isn't that bad. We can still get all 
the food we want from the other side of the world, flights are still 
historically cheap, it isn't so bad that car drivers are sharing their daily 
commute, and economic growth has not gone into reverse - at least, not yet. The 
Boston Globe wrote recently: "So far, expensive energy has not had much impact 
on the economic expansion. The US economy grew at a healthy 3.4% in the second 
quarter and most forecasters expect even stronger growth for the rest of 2005." 

In the same article, Richard DeKaser, chief economist at National City Corp, a 
bank based in Cleveland, said every $10 increase in the price of oil shaves 
roughly half a percentage point off the economy's growth rate, and that higher 
oil prices would slow but not derail the economy. It might not be until a $100 
barrel of oil emerges that a recession will be triggered. And a recession 
equals demand destruction. 

I am not an economist but I suspect that if demand dropped off at 2-3% a year 
in line with an economic recession, and oil supply dropped off at a similar 
rate, then oil will stay at around $100 if we assume we passed the global peak 
in the rate of oil production. It doesn't take Chevron to tell us that the era 
of cheap oil is over (although they do with their website and campaign 
willyoujoinus.com). 

Beginning of "The Great Decline"
So maybe everything is fine until that $100 barrel mark. People talk of an oil 
crisis, but surely, since we are waiting for the $100 barrel, there is nothing 
to worry about. Right? Wrong. Around the world, silent to us, the oil crisis 
has truly begun. They are at the beginning of what some are calling "The Great 
Decline". 

Just as rising sea levels threaten to flood low-lying lands unable to protect 
themselves, rising oil prices threaten countries with weak (low-lying) 
economies. Rising oil prices are a rising tide, and there are many examples to 
look at. The countries that will be first affected by rising oil prices are 
those with a more youthful oil-dependent economy or those that do not have the 
economic strength - either as a nation, or as individuals, to cope with it. 

Eritrea: The game is over
In October 2004, petrol sales in Eritrea had to be suspended - conserved only 
for essential use. Eritrea was struggling with the economic consequences of its 
border war with Ethiopia. Ethiopia used to be Eritrea's largest export market, 
so with the border closed and the debt of war hanging around its neck, Eritrea 
found itself in a position where it was simply unable to pay for petrol due to 
a foreign currency shortage. Since February, private companies have not been 
allowed to import oil. BBC wrote of the situation, "The usually busy streets of 
Asmara have almost entirely cleared of private cars as the rationing of fuel 
bites." 

What this means is that there is one less bidder at the World's oil auction. 
Eritrea is among the first but it will not be the last. Furthermore, Eritrea is 
one of the most food-aid dependent countries in the world. However, although 
Eritrea is entirely dependent on imports for its oil, it is not an economy 
heavily dependent on oil. That is not to say that oil would not be beneficial 
to the country as it could give it the energy to fuel farm machinery, irrigate 
land, transport crops and make it self-sufficient in feeding its population. 
The oil game and any hope for the kind of prosperity seen in the West is 
effectively over for Eritrea. With Hubbert's Peak in sight, there is little 
hope this country will rejoin the international oil game. It is almost in a 
catch-22 situation - it needs oil to get back in the game, but it can't get the 
oil without being in the game. 

Indonesia feels the pinch
Indonesia is another country that is beginning to feel the pressure (again) of 
rising oil prices. Once a net exporter of oil, this OPEC member is an example 
of a more industrialized country now struggling, not just economically, but 
socially and politically. Fuel is subsidized in Indonesia but the rising oil 
costs have had to be passed on to consumers and that has proved increasingly 
unpopular. However, unless Indonesia removes the subsidies even further, 
experts predict the economy will suffer. As the CIA Factbook notes, "Indonesia 
became a net oil importer in 2004 due to declining production and lack of new 
exploration investment. As a result, Jakarta is not reaping the benefits of 
high world oil prices, and the cost of subsidizing domestic fuel prices has 
placed an increasing strain on the budget." 

The Indonesian government is caught between a rock and a hard place - if it 
removes subsidies, there will be civil unrest, and if it doesn't, the economy 
suffers. However, it will be familiar with recent history. In May 1998, during 
a period of severe economic problems and fears of food shortages, the 
Indonesian government announced IMF-mandated fuel price hikes. Riots followed, 
and the fuel prices were quickly rolled back. What followed were 17 days of 
chaos resulting in President Suharto resigning. It is thus no shock to find 
that Indonesia is listed in the US Department of Energy "Oil Hot Spots". The 
extra profits that can be made from its 4-billion-plus barrel oil reserves as 
oil prices increase might ameliorate the situation to an extent, but there is 
no doubting the damage the oil crisis brings to Indonesia. 

So does Philippines
The oil crisis is getting particularly acute in the Philippines. Already, 
President Macapagal-Arroyo is talking of rationing oil if prices don't fall and 
conservation efforts are not made. Furthermore, there are calls for political 
unity across all parties, as well as demand for the public to take this problem 
seriously. "We cannot afford a divided nation amid this oil crisis. We have to 
unite to ensure and survive, and let not the people blame their leaders for not 
taking up the challenge," said presidential spokesman Ignacia Bunye last month. 
Unlike Indonesia, though, there seems to be a wider acceptance that the oil 
price is market-driven. But the oil crisis is having an impact on daily life. 

Employees have three rest days every week; supermarket workers are dismissed 
one hour earlier at night; streets are only colored by neon lights after 9pm; 
and night golfing lovers have had to temporarily quit their hobby. Gas stations 
are operating only 20 hours a day instead of 24. "To implement mandatory and 
voluntary measures for fuel demand restraint and efficient use of electricity 
will help combat adverse effects of the relentless increase in world oil prices 
on the local economy", the DOE said in a statement. There are other measures 
proposed too, including fuel rationing, recycling waste oil, regulation of 
air-conditioning and regulation of motor vehicles to conserve fuel and relieve 
traffic congestion. 

The potential for such a situation throughout the world is clearly expected by 
international agencies. In April, the IEA (International Energy Agency) 
launched a book called "Saving Oil in a Hurry" which is described as a "New 
analysis of measures that governments can use to 'save oil in a hurry'". 
Measures suggested include telecommuting, car-pooling, transit use and 
"ecodriving" (fuel-efficient driving styles), among other measures. 

The stark example of North Korea
One of the starkest examples of the silent oil crisis is in North Korea, where 
there is a virtual news blackout. The news that does get out is incredibly 
worrying. This is a country that is totally isolated from the world and where 
the daily food rations are just 250 grams. These meager rations are the simple 
sign of a country unable to feed itself due to a lack of fertilizer and farm 
machinery. Nor does North Korea have the fuel to run irrigation systems or 
power tractors. The population of North Korea was able to increase, boosted by 
energy and food imports from its Soviet allies, during the Cold War. Now that 
that support has gone, the carrying capacity of the land is below that of the 
population levels. As Edward Goldsmith wrote for the Global Warming Crisis 
Council: 


If three million people starved to death in North Korea in the last few years, 
it was partly because, as a result of the collapse of the Russian market which 
absorbed most of its exports, it could no longer afford to import the vast 
amount of oil on which its highly mechanized, Soviet-inspired, agricultural 
system had become so totally dependent. Its 'farmers' had simply forgotten how 
to wield a hoe or push a wheelbarrow.
An article in the Seoul Times headlined "Glimpses of a hermit nation" also 
paints a dire picture of a country deprived of energy, although North Korea's 
problems also come from choosing not to trade internationally, and from an 
unwillingness to reform its state-dominated Leninist planned economic model, a 
model which has consistently failed everywhere in the world it was tried. 

The Cuban crisis
Cuba is often touted as the "flip-side" to North Korea. Although not totally 
isolationist, the collapse of the Soviet Union left Cuba adrift with much 
reduced oil imports and in a fairly similar situation to North Korea. 
Nonetheless it has managed to find a way to get by on less and less oil - not 
without struggle. A report by CommunitySolution.org posited the country in a 
positive light, considering its resources. But an aging energy infrastructure 
has seen an energy crisis re-emerge in Cuba. Recent power outages have caused 
small protests and prompted comparisons to the early 1990s power crisis that 
resulted in the 1994 rafter crisis as thousands of Cuban refugees headed to 
South Florida's shores. Billions of dollars are said to be needed for power 
plants and oil to alleviate Cuba's immediate energy problems. 

There are many more countries with similar problems and there will be those who 
have never had the chance or will ever have the chance to fully industrialize 
or reach the levels of prosperity enjoyed by so many in economically developed 
nations. For the environment, this may be a good thing but there is no doubt 
that economic prosperity is one path to battling problems such as hunger. This 
is not to suggest that fossil fuels such as oil are a magic fix for all the 
world's woes - to be dependent on something unsustainable is a mistake, 
especially when that mistake will ravage your climate and make surviving The 
Great Decline even harder. 

What we have learned from the last 100 years is that having oil makes work 
easier and more profitable and enables a way of living otherwise impossible. 
Without oil, work becomes harder, less profitable and limits your options. The 
rising tide of oil poverty will drown country after country, until even the 
highlands become lowlands. 

Oil crisis in the West
The signs of an oil crisis are already here in the UK, in Europe and also in 
the US, even if it is still too inaudible to be heard as a serious warning. 
However, France's Prime Minister Dominique de Villepin is already giving that 
very warning. Recently he told a news conference, "This crisis, we know, is 
likely to last. All the factors have come together for oil to remain expensive 
in the years and decades to come. Our refining capacity is saturated and cannot 
adequately cope with French demand." 

This is a crisis because oil enables growth and growth is the aim of most 
individuals, businesses and nations. If the aim was not growth but 
sustainability, this would not be an oil crisis but an oil opportunity. As it 
stands, without increasing amounts of cheap oil, growth becomes ever more 
difficult to achieve. And not just growth but even more basic things such as 
providing food, warmth and water will become more of a challenge. 

"Many of the truckers who distribute produce are charging higher prices or 
getting out of the business, making it harder for farmers to get their crops to 
wholesalers... Fertilizer manufacturers are also facing much higher domestic 
natural gas prices, driving the prices they charge higher," a report in the 
NCTimes revealed. It is not much better in the UK. In April 2005, a story in 
The Herald revealed, "Farmers in Britain are beginning to feel the pinch. A 
decade ago, when the value of malting barley was close to 150 pounds per ton, 
haulage rates were a minor issue. However, with grain now selling for little 
more than 80 per ton, the slice carved off by transport charges bites hard. The 
added factor in the farming equation is that the price of fertilizer has shot 
up by at least 30%, while the availability has gone down dramatically." The 
plastics industry in the UK is also under threat by rising energy costs, 
according to Plastics & Rubber Weekly. If you listen in the right p
 laces, you will see the oil crisis is maybe not so silent. 

As person after person, business after business and country after country drops 
out of the scramble for oil, those still in the game will be able to continue 
and feel that things are all right. We must take warnings now because even 
though it may be the Philippines today, in 30 years, with North Sea oil 
depleted and Britain struggling with huge levels of debt, it could be us. 

Fuel poverty - a new social evil
The oil crisis gets louder, not just country by country or business by 
business, but person by person as well. The silent oil crisis has indeed begun 
in the UK with fuel poverty being called "a new social evil". According to the 
BBC, "Latest figures suggest there are currently over 2 million households 
across the UK that cannot afford to keep adequately warm at a reasonable cost. 
As energy prices rise, this number will go up. The consequences are enormous. 
Fuel poverty can and does kill." In addition, as oil prices increase, this will 
add to inflationary pressures that will, as a result, see interest rates rise 
to cool inflation. This will bring about very tough times for the average 
Briton who is said to have 5,000 pounds of personal debt, and is economically 
dependent on unsustainable levels of housing prices. 

And the oil crisis has many stark implications other than simply economic or 
agricultural ones. On the global stage, Iran, a country that may have passed 
its oil production peak, is looking to build domestic nuclear power to 
compensate, and maybe also to develop nuclear weaponry to keep at bay outside 
interests with eyes on its remaining reserves. With America none too keen on 
this situation, the potential for conflict, as a result of the oil crisis, is 
high, and will make the silent oil crisis a very loud one. 

Compete or concede
What we have seen then is just because the rising price of oil does not seem 
too damaging to us, it is already damaging many parts of the world where it is 
having an effect similar to the 1970s oil crisis. There are two obvious options 
left for everyone in the oil game. Those options are that you compete or you 
concede. We either compete for the remaining oil resources and cling to the way 
of life we know at whatever cost, or we concede, ease our way out of the game 
and make the oil crisis an oil opportunity. That makes it sound all too easy 
when in fact it presents human civilization with the greatest decline it will 
ever know. Both paths will be filled with incredible difficulties. The oil 
crisis gets louder - listen to it, talk about it, prepare for it - it is out 
there, the tide is rising and rushing toward us. 

James Howard runs a UK peak oil awareness campaign at www.PowerSwitch.org.uk. 
He is now helping organize a major peak oil conference in London in October. 
This piece was originally published in Countercurrents. 

Speaking Freely is an Asia Times Online feature that allows guest writers to 
have their say. Please click here if you are interested in contributing. 




[Non-text portions of this message have been removed]



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