From the Wilderness
Twilight in the Desert: the coming Saudi oil shock
and the world economy by Matthew R Simmons
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this material is distributed without profit to those who have expressed a prior
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During the 1990s it was fashionable to scoff at the
notion of limits to growth. A knowledge-based economy was coming into being in
which natural resources didn't matter. The future would be driven by a search
for new ideas rather than the struggle for control of the planet's assets. We
were entering an era defined by information technology, in which rapid economic
growth could continue for ever. It was never easy to square this fanciful
philosophy with historical reality: the 1990s began with the first Gulf war,
which was fought solely to secure oil supplies, and cheap oil was the basis of
the prosperity of that feckless decade. Yet somehow or other these facts were
forgotten, until Iraq.
With the launching of the second Gulf war, the
crucial role of oil in the world economy was exposed. From statements made by a
number of its American supporters, it seems clear that the strategic objective
of the Iraq war was to enable the United States to withdraw from Saudi Arabia,
which had come to be seen as an unreliable ally. According to the game plan,
Saddam Hussein would be toppled, Iraq would be pacified in a few months and oil
would fall to $10 a barrel. The global economy would then take off in another
boom with the US in firm control of the world's second-largest oil
reserves.
This was always a far-fetched scenario, and things
have not worked out as envisaged. Iraq is a failed state in the grip of an
intractable insurgency, and the price of oil is roughly $60 a barrel. The
scramble to secure energy supplies is more frenzied than ever. The Great Game
has been resumed, not only in central Asia but also in the Gulf. If Iran is
attacked by the US in the course of the coming year or so, one reason for this
will be to stymie energy supply agreements that Tehran may be planning with
America's competitors, notably China and India.
The limits to growth have not gone away. They have
re-emerged as classical geopolitics - a condition of continuous rivalry among
the great powers for control of the world's most valuable natural resources. In
this intensifying struggle, no country is more important than Saudi Arabia. The
kingdom is the world's pivotal oil producer. Any disruption in supplies of its
oil would be hugely destabilising to global markets. Even more crucially, it is
the most important resource base for the oil that will be tapped to meet growing
world demand. As emerging countries industrialise, their energy use increases
exponentially. Saudi Arabia is the site of the planet's largest low-cost oil
reserves, and in effect acts as the energy bank of worldwide
industrialisation.
Matthew R Simmons is convinced that Saudi oil
production is near its peak, or indeed may have passed it, a development with
awesome implications. Simmons, a veteran oil finance insider who has been an
important adviser to the Bush administration, has done a huge amount of research
and bases his conclusions on carefully sifted evidence, not large theories. Yet
his view is consistent with the theory of M King Hubbert, a Shell geophysicist
who argued in 1956 that production rates for oil and other fossil fuels exhibit
a bell curve: when roughly half the oil has been extracted, production declines.
No one took much notice of Hubbert at the time, but he predicted that oil
production in the continental United States would peak and start declining in
the late 1960s or early 1970s - as it did. Since then a number of large
oilfields have also peaked, including the North Sea in 1999. When oil peaks it
does not run out - there is usually a slow decline that can be spun out by new
technologies - but the unavoidable result is falling production.
Could we be near a global oil peak? Simmons
believes that point may already have passed and warns that the idea that
technology can arrest the decline may be a delusion. In his view, Saudi oil
production has been boosted by the use of technologies which actually reduce the
future supply of recoverable oil. The implication is that Saudi production has
peaked, and with it global oil production, at a time when demand is rising
inexorably.
Twilight in the Desert is not always easy to read.
It largely consists of highly technical discussion of the history and condition
of Saudi oilfields. Yet its impact is to transform our view of the world. Many
in the oil industry - and particularly Aramco, the Saudi oil company - will
dispute Simmons's claim that Saudi production is near its peak sustainable
volume. For most readers the question will be whether Simmons can be trusted. I
am certain that he can. He is not the only oil expert to say that a peak in
global production may be near (Dr Colin Campbell of the London-based Oil
Depletion Analysis Centre is another) and, unlike many in the oil industry,
Simmons has no axe to grind. This is a ground-breaking book by an analyst of
unimpeachable authority.
Simmons's analysis suggests that the current phase
of worldwide industrialisation is crucially dependent on the uncertain reserves
of a single Gulf kingdom facing vast and potentially insuperable challenges. As
he shows in a superb digression, the most formidable of these is population
growth. The kingdom's current population of roughly 22 million is expected to
rise to roughly 50 million by 2030, and unless there is a large and sustained
rise in the oil price, living standards are bound to fall steeply - as they have
been doing since the early 1980s. The Saudi rentier economy is facing a
Malthusian crunch, and against a background of already high unemployment the
result so can only be a condition of chronic instability. If the most obvious
effect of our dependency on oil is a series of resource wars, another could be
an upsurge of revolutionary movements in oil-producing countries. While it would
be an error to think that the Saudi regime is on the brink of collapse, in a few
decades the kingdom could well be an Islamist republic - or, perhaps more likely
given its origin as an artefact of the colonial era, another failed
state.
Simmons makes a formidable case for the pivotal
importance of Saudi Arabia, but he may actually have understated the impact of
peak oil. One reason is the central role of oil in intensive farming.
Contemporary agriculture relies heavily on oil-based fertilisers, pesticides and
herbicides. At bottom, the green revolution was about the extraction of food
from petroleum, and a peak in world oil production could trigger a peak in world
food production. A second is climate change. As oil supplies are becoming
scarcer and less secure, many countries are looking to other fossil fuels such
as coal. New technologies can make coal much cleaner, but a large increase in
coal use alongside continuing dependency on oil could magnify the greenhouse
effect. In other words, peak oil could accelerate global warming.
The conjunction of peaking global oil production
with quickening climate change poses fundamental challenges that no section of
opinion has adequately confronted - including the Greens. The energy-intensive
lifestyle which is now spreading throughout the world cannot be sustained with
non-renewable and polluting fossil fuels, but it is sheer fantasy to imagine
that a human population of between six and eight billion can be supported on a
combination of windfarms, solar power and organic agriculture. As Simmons notes,
we may be approaching the limits of growth that the Club of Rome identified more
than 30 years ago, and we are no better prepared to adjust to them now than we
were then.
John Gray's latest book is Heresies: Against
Progress and Other Illusions (Granta)