Rationing Energy - Alternative to war
and possible consequence of war.

Talk presented to the seminar on Energy Policy and the Iraq Crisis in Nottingham, 13th March 2003.

To start off let's recall that George W. Bush's career, before he arrived at the White House, was in oil exploration. He was manager of Arbusto/Bush Exploration between 1978 and 1984 and Harken from 1986 to 1990. He was also a total failure - it only proved possible to keep pumping up the stock market value of Harken by planting misleadingly optimistic reports about supposed prospective oil finds. This fact, that Bush failed to find new oil, but resorted to misleading reports to cover up the failure, is worth bearing in mind when we consider the current situation. In a way, you can describe the Iraq war crisis as the same saga replayed on a vaster scale, and infinitely more destructively - oil in sufficient quantities can no longer be got by exploration, so it is to be got by further lies and military action. The world peak of new oil field discoveries was in about 1970 and has been in decline ever since. Several decades later the prospect is of depleting supplies. The alternative to ever more destructive conflicts about who is to get this declining resource, is that oil will have to be rationed, between nations and within nations - for reasons of equity and for good environmental reasons too.This is what this talk is about.

Modern Society - 200 years of economic development based on fossil fuel technologies

The last two hundred years economic development has essentially been about applying waves of linked innovations to the production process, based on different fossil fuel powered technologies. In the 19th century that was about coal and steam power - which with iron and steel led to the factory system, railways and steam ships. In the twentieth century new waves of inovation around oil and gas, the internal combustion engine and then electricity - have effected every aspect of economic life, right up to the computer.

Since 1850 humans have burnt 850 billion barrels of oil, 2200 trillion cubic feet of gas and countless millions of tonnes of coal. The human population has increased sixfold and of cattle tenfold. The simultaneous increase in living standards in industrial countries is dependent on this energy input. A good way of understanding this is to use the concept of energy slaves.

A fit person working 7 days a week, 12 hours a day, can do the equivalent of about 6 or 7 kilowatts of work measured in energy units. Now the average European enjoys a standards of living as if supported by 30 of these energy slaves. For the average US citizen it is 55 energy slaves. (Malcolm Slesser, Jane King and David C Crane, "The Management of Greed. A Bio-physical appraisal of environmental and economic potential" Resource Institute Limited, Dunblane, 1997 p 43)

The Business as Usual Scenario - the world's future as seen by ExxonMobile

Despite the Kyoto Protocol, and all the concerns of a global climate catastrophe, the oil and gas business interest sees a continuance of the trend to the use of more fossil fuels. In a recent presentation to the Institute of Petroleum week, a Mr Tillson, a senior ExxonMobil executive, pointed out that hydrocarbons account for 80% of the world's energy supply, with oil and gas providing 60%, and said that they were set to grow for at least two decades (why he said only 2 decades has been questioned by some). A large part of this growth will be in Asia - Imports of oil and gas to Europe and the USA are to grow by 3 Mb/d to 2020, but by 15 Mb/d to Asia. Overall, his prediction is that world demand for energy will grow by 40% to the years 2020, assuming a continued 3% growth rate in world economic activity. By contrast he argued that renewables are, in market terms, uneconomic unless the price of oil rises to $100-250 a barrel of oil. That compares to the relatively high price of $30 a barrel at present. In consequence, renewables are seen by the oil interest as providing only a tiny fraction of the world's energy needs by 2020 - about 1%. (quoted in ASPO Newsletter. The newsletter can be seen on the following websites: http://www.asponews.org http://www.energiekrise.de <Press the ASPONews icon at the top of the page> and www.isv.uu.se/iwood2002 )

Now the point is that there is not an inexaustible supply of what I have termed above "energy slaves". Even if there were, the effect on World Climate of continuing to use them at this rate would be catastrophic. In the same speech by Tillson there are several acknowledgements that there are, and will be, difficulties about sustaining the growth in oil production. Another major part of his speech was that mature areas such as the North Sea are in decline and that new "remote" sources will have to be found. Thus, by 2020 "50% of supply will have to come from new fields" - and a major effort will have to be made to develop new technologies to offset the decline in new fields - an effort which he costs at $100 billion a year in exploration alone. This is the point to which I now turn.

Differential depletion and its consequences

In fact, oil and gas is running out and the important underlying issue, that is crucial to understanding the background to the Iraq crisis, is the different rates of depletion in different countries.

In 1930, the USA was supplying 64% of the World's oil, and the Middle East (Gulf) was supplying only 4%.

By 1950, the US had slipped to 52% while the Middle East had grown to 17%. The two regions reached parity, both at 27% in 1964.

By 2000, the US had sunk to 11% whereas the Middle East had risen to 29%.

A short-lived surge of US deepwater production peaks around 2008, but doesn't materially alter the overall trend.

By 2025, the US will have almost ceased to produce while the Middle East will be supplying 50%, rising to over 60% by 2050. By then, it will be producing the same share as was the United States in 1930.

Russia pulled ahead of the USA in 1975 and briefly overtook the Middle East in 1980s. But by 2050, it will be in the same boat as the USA, relying on the Middle East for imports. (Source: ASPO Newsletter March 2003)

James Woolsey on the Iraq Crisis - the view from the Pentagon

It is this that provides the background to the current crisis. Tony Blair denies that this war is about oil. But there is no such reluctance to admit the influence of oil within the American administration. One interview that brings this out very well, was give by an adviser to Donald Rumsfeld, and a former head of the CIA, James Woolfson. In an interview in the german weekly news magazine, Der Spiegel (edition: 4/2003) he acknowledges it openly. In the interview Woolfson uses a concept that is familiar in the oil industry - the concept of 'swing producers'. These are the countries whose power resides in the fact that they can increase production to changes in global demand for oil, where others cannot do so. As oil depletion proceeds differentially, it is 5 middle eastern countries that are in this category, above all Saudi Arabia and Iraq, and their potential power is increasing enormously. By 2009 it is estimated that the Middle East will provide 50% of world oil production.

Here is the excerpt from the Spiegel interview:

......Spiegel. Back to the Axis of Evil: Iraq has oil, North Korea doesn't. As early as May 2001 the Bush government announced a new aim for its energy policy. Doesn't the dependence on imported oil make America particularly vulnerable?

Woolsey. Oil is the the life's blood of all industrial nations. Two thirds of the known oil reserves lie in the Persian Gulf. When Saddam in 1990 marched into Kuweit and got closer to the Saudi oil fields he was a mere 100 kilometres away from bringing a half of the proven oil reserves of the world under his control.

Spiegel. So it's about oil this time...

Woolsey. But not only America's dependence on oil, but that of the entire world. In the short term our basic vulnerability lies in the fact that the Saudis can quickly throttle or boost the level of oil output, because they have access to over half the world wide "swing capacity", in total 4 million barrels. Therefore the Saudis have a decisive influence over the oil price. We must take the oil weapon away from the Middle East. (My translation)

Distinguishing short term and long term consequences

OK. That's something on the background to the current situation. Now I want to turn to looking at two things - one is the possible short term consequences of a war on the world energy situation and the other are the longer terms issues that will have to be resolved, irrespective of whether there is a war or not. I think it's helpful to make this distinction because they are sometimes muddled together. Ideas that might be appropriate in the long term get recommended as short term solutions to current problems and vice versa.

To illustrate what I mean here, we had a discussion a few weeks ago where we spent a lot of time discussing whether vegetable oil could be used as a substitute for diesel in motor cars - an idea that Greenpeace has promoted. Now there's a real sense in which it's a good idea to counterpose bio-diesel to fossil fuel based conventional diesel. The mini bus of my own organisation runs on recycled chip fat and, apart from that aroma, as if it's frying tonight when we drive, its a thoroughly good thing to use it. But, in a short term crisis, there must be serious doubts if large number of people can turn to using vegetable oils from the supermarket shelves. In the immediate term there is only a fixed amount of vegetable oil, an amount that depends largely on the crops harvested for oil yielding plants like sunflowers, maize and so on. The availability of increased vegetable oil is at least the next harvest away, for which increased seed would have to be set aside out of existing harvests. If a huge number of people went buying it up to put it in their cars, because there was a shortage of diesel at the pumps, then in the short term, a lot of other people would do without an important calorific intake to their diets. So what might be possible long term, should be distinguished between what is possible in the short term - an important issue for crisis management.

Developing renewables - a very long term process

It is also the case that whatever we say about wind energy and solar energy they are not going to be developed quickly and in a hurry. Even if the world oil price did go up to $100 a barrel, which would, incidentally, create a massive collapse in the world economy, it will still take a very considerable time to manufacture, install and bring wind and solar energy sources into operation. That's not a reason not to do it - but it does put things in an important perspective.

"A detailed study, published by the LTI Research Group in Mannheim in 1998, found that, if the development of renewable energy systems were supported as an urgent priority by decisive, well co-ordinated actions by governments, then it would be possible to provide energy from them equal to as much as 35% of the energy used at present - but it would take 50 years to do so" (LTI Research Group. Long Term Integration of Renewable Energy Resources into the European Energy System, Heidelberg, Physica Verlag - quoted in David Fleming, After Oil, in FEASTA Review, Dublin, May 2001).

The same message comes through by studies by Professor of Energy Studies at Strathclyde University, Malcolm Slesser and his team. They have looked at how long it would take, under varying assumptions, to get the UK and other economies to be wholely based on renewable energy sources. Even under conditions which make available a very large amount of resources for producing installing renewable energy equipment it would still take the UK something like 100 years to get to where it could fully rely on renewables. Let me quote one of the conclusions of their book, The Management of Greed: "To answer question posed at the outset 'Can renewable energy fuel the world?' the answer is probably yes, but the time horizon is of the order of a century or more. In the meantime we shall need all the oil and gas we can lay our hands on to keep the system going and build the renewable replacements. Moreover, for a full hydrogen economy we shall need coal as a carbon source for some uses where portable liquid fuels are essential." (Slesser, King and Crane )

It is therefore difficult to understate the scale of the task of converting the economy to renewable energy resources, from fossil fuel resources - and when calling for the development of renewables as a solution to the current crisis, as an energy crisis, it's important to be honest and clear about that point.

A similar reservation has to be made about the optimistic scenarios to radically re-engineer production to make it lightweight and therefore reduce energy and materials requirements. The potential to do this is definitely there - for example, 200 mile to the gallon "hypercars" are not at all infeasible when moving away from metal car bodies. The reduction of material and energy inputs per unit of output strategy is the so called Factor 4 or even Factor 10 option - Factor 4 supposedly meaning the adoption of technologies which would give us twice the production with half the materials and energy consumption. These options are most famously expounded by the Wuppertal Institute in Germany and the Rocky Mountain Institute in the USA - Bill Clinton was an enthusiastic fan of the writings of the Rocky Mountain Institute and it seems likely that this would have been part of the Al Gore agenda had he come to office. (The chief text for this perspective is Paul Hawken, Amory B Lovins and L Hunter Lovins "Natural Capitalism. The Next Industrial Revolution" Earthscan, London 1999. It is packed full of technical fixes and has a dust jacket with praising quotes from Bill Clinton).

The criticism of this strategy is that Factor 4 technological advances will not lead to a half the energy and materials requirement being used to produce twice the volume of goods but, given the way capitalism works, the technology will be used to produce 4 times the volume of goods. Moreover the idea has been criticised, among other reasons, on the grounds of technical feasibility by Slesser and others. In the FEASTA Review No.1 Malcolm Slesser has reviewed the Natural Capitalism book and he notes that he worked with some Wuppertal Institute members on a European Union funded research project. "However hard we tried, using their data, we could never achieve more than a factor 2 reduction in input per unit output" (p 176)

The reduction in fossil fuel usage has to be enforced

Whatever way you approach the questions thrown up by looming shortages in energy - whether by arguing for renewables, for energy efficiency, or for "natural capitalism", it seems that there has also got to be some enforced way to curb and regulate energy demand. Inthe normal market rationing occurs by price and it is the rich who drive the poor out of the market - perhaps aided in this by their superior weaponry. If this is not to happen then alternative rationing arrangements are needed.

In this regard, economists call the short term elasticity of demand for oil is very low, while the long term elasticity is much high. That means it is very difficult for people and the economy to adjust fuel consumption in the short term although it is much more possible in the long term - if there has been a profound re-orientation that reaches into every vein and tissue of the economy (to use a nice phrase of green economist David Fleming). If, at first sight, these ideas seem alarming it should be stressed that there are ways to bring down energy consumption dramatically and still live a satisfying life. It by no means follows that the introduction of what Fleming terms a "lean economy", means inevitably, that we will have lower life quality - if, and this is the important "if", if people can readjust and we can avoid tearing ourselves apart as a world community, and as individual societies, in the conflicts that readjustment will inevitably bring. For example the following will bring energy consumption down quickly: (1) Transport: walking, riding a bike or taking public transport more often. (2) Eating food that is less intensive of energy (local with lower transport costs; organic, not based on petrochemicals; vegetarian, since rearing animals uses a lot more grain and crops grown as fodder compared to eating the grain and crops directly ourselves).(3)Saving energy at home: being careful, insulating and draughtproofing. If you think about it, a radical reduction in transport will not only improve air quality - it will make streets safer for children and make cities less congested. The energy intensity of production has certainly increased the speed of production, transport and life in general, creating a predominant time pressure as people rush from work to consumption, with very little free time, and resorting increasingly to fast food in their diets, with a matching disintegration in the extent to which families eat together. For all these kinds of reasons it is doubtful that the hyped up activity rates oin the modern economies have increased life quality even if they have increased consumption - and there are some arguments that life quality has fallen since 1970. An energy crisis may turn out to be a blessing in disguise - the necessary therapy for our economies and societies.

The Global Peak of oil production

However, there is fist of all a very profound reorientation needed, collectively and individually. Without this reorientation humanity is entering a very dangerous stages in its evolution. The crisis is an opportunity and a very grave danger.

Let's leave aside for now the need to bring down fossil fuel consumption because of the greenhouse effect. Even were there not a problem here, and there is a huge problem, current projections mean that the world economy will soon have to start living with declining supplies of oil. Current projections are that the Middle Eastern swing producers will be able to produce more, but with decline occurring in other areas, they can only take up the deficit up to a certain and within 10, perhaps a little longer, they will start to go into depletion themselves. These are the figure from the last Assocation for the Study of Peak Oil newsletter (March 2003).

PRODUCTION RATE FORECAST Mb/d
Status: end 2002
 
2005
2010 
2020 
2050 
Total to 2075 
Regular Oil
60
60 
47 
22 
1900 
US-48 
3.5 
2.6 
1.4 
0.2 
195 
Europe 
5.1 
3.7 
1.9 
0.3 
76 
Russia 
8.6 
9.4 
4.9 
0.7 
200 
M.East Gulf 
17 
22 
22 
13 
749 
Other 
26 
22 
17 
8 
680 
Heavy, bitumen etc 
2.8 
4 
5 
6 
300 
Deepwater (>500m) 
6.6 
9 
4 
0 
63 
Polar 
1.2 
2 
6 
0 
30 
Natural Gas Liquids 
8.2 
9 
11 
6 
400 
Total
78 
83 
72 
33 
2700 
Base Case Scenario: flat demand for conventional oil due to recession; M.East swing role ending in 2010 Regular Oil includes Condensate but not liquids produced from gasfields by processing - PNGL
 
(For an explanation of the model underlying this table see the end of the text )

It will be noticed that declines in the US, Europe (the North Sea) and elsewhere are made up by a small increase in Russia and a bigger increase in the Gulf - up to 2010! Thereafter the Gulf still produces at a high level, but does not continue to increase, so that overall trend is downwards.

Now there are those that challenge these figures. There are ignorant challenges and there are (slightly) more sophisticated ones. The ignorant challenges, that I have heard when I present this argument at meetings, is that more oil will be found. The point here is that these figures already include an allowance for probable "yet to be found" based on best estimated projections of past trends. Past trends on oil discoveries are often diagramatically shown in what are called "creaming curves". On the horizontal line along the bottom of a graph the number of exploratory oil wells are shown, while going up the vertical axis, the new oil discovered is plotted. Relating new oil discovered, to the number of exploratory wells, in this way shows that clearly that new discoveries are declining. An oft quoted statistics is that 4 barrels of oil are now being used for every one being discovered.

Another idea is that more oil can be got out of existing wells and existing fields through new technology. This is the idea of "reserve growth". However, often enough what appears to be reserve growth is because earlier the oil industry fiddled the figures. For tax reasons, and to ensure the appearance of continued growth in their assets to keep the financial markets happy the oil industry sometimes understates their reserves. True reserve growth would show up if one compared annual production as a % of past production (cumulative production), which would suggest, more is being got out of existing fields. Doing this "...for most major fields shows unequivocally that technology barely affects the reserves. The observed upward revision of reserves is primarily an artefact of reprting practices" Colin Campbell, "The imminent peak of world oil production" FEASTA Review, May 2001, p90).

In fact the infeasibility of reserve growth through technology is apparent when one looks at industry estimates about how much it would cost. In the Economist, (issue of 1st November 2001), the costs of modernising non OPEC oil fields, estimated by the International Energy Agency, are put at $1 trillion. $1trillion is about one tenth of the USA's GDP in a year. The UK's GDP is £934.92billion X 1.4 = $1.3 trillion so this is a figure about equal to 77% of the UK's GDP. $1trillion is also 23 times the current yearly investment sum by all the major existing oil companies together in all their areas of investment. So, if this investment programme is to happen over the next ten years, it would mean a huge hike in the current rate of capital formation in the oil industry.

The quotes from a representative of ExxonMobil made earlier can be described as the management of an industry looking at a mountain that they will have to climb - it is not surprising that Bush and his oil industry government have decided that they must also try to secure oil by military means.

All this brings me to the essential point I would like to make. There seems to me that although a strategy for renewal energy is called for by the current crisis, and by the Greenhouse Effect, it is not a short term solution to a looming energy crisis. For reasons of depletion, and for reasons of international relations, the world has to find another way of regulating its access to world oil and gas, other than going to war to secure supplies of it.

Regulating the energy and oil markets - new policy instruments

If there is to be a declining amount of fossil fuel energy, and if there in any case has to be a declining consumption of fossil fuels for reasons of the greenhouse effect and preventing climate change there are two questions posed in the international political arena as well as in the national political arena.

(1) How to cap and reduce world oil demand for oil and (2) how to share out the access to oil equitably between countries. These are the central political economic questions being posed by this crisis. If you do not accept that countries can use military force to corner the world's oil - then what alternative principles should regulate access to world oil? Then, following on from this, how do you regulate energy consumption internally to countries to make the situation stick?

As it happens there have been a number of proposals put forward on this issue - both for the international rationing of energy demand and for rationing energy internally to industrial countries. These are the contraction and convergence principle, and the oil depletion protocol. Internally to countries is the proposal for domestic tradeable quotas for energy.

The Contraction and Convergence Principle

The contraction and convergence principle has the support of the non aligned group of nations and of China and India. It is also supported by people in the UK including Ken Livingstone. What it says essentially is that you agree an international limit for carbon emissions between all countries - that limits the total burden on the environment and effectively caps consumption for fossil fuels. You then divide the global total as a budget allocated between countries according to their population - thus with 4% of the world's population the US would be entitled to 4% of the world's carbon permits. Of course, there would then be a situation where sme countries are over their budget and some vastly under their budgets - and the solution to this is simple - the carbon emission permits would be tradeable. The countries under budget would sell their permits. Now many environmentalists throw up their hands in horror at this idea because it seems that they are supporting permission to pollute permits. However, there is no way that pollution and the burning of carbon fuels can be stopped over night. If it were to stop over night then the bulk of the world's population would be dead in a very short time. The important point about these permits is that they set an upper limit on emissions and this upper limit can be gradually reduced over time. It is also an equalitarian principle - and involves a resource flow from rich to poor countries.

The Oil Depletion Protocol

This is a way of capping demand for access to fossil fuels in general. Running in tandem with this are the suggestions of an oil depletion protocol to regulate production in a time of depleting supplies of oil. This has been taken up by an organisation of international lawyers, who were responsible for drafting the Kyoto Protocol. The idea is that the producing countries would limit their production to their current depletion rate (i.e. annual production as a percentage of the best calculations of reserves available for future production). and that the importers would refrain from accepting infringements. There could be exemptions for gas, non-conventional oil and gas, and possibly for new or small producers. The inclusion of the importers in the Protocol would have the effect of balancing international trade and reducing market-induced wild fluctuations in price, which are widely perceived to be damaging. The importers are left with the task of allocating their available imports under the protocol, as they see fit - through fiscal measures, auction or in other more socially-conscious methods. Countries could appeal the assessment of their depletion rate by opening their data to objective technical audit, which would have the added advantage of improving the database, which is currently grossly unreliable.(Source: ASPO Newsletter)

You will notice that both the Contraction and convergence principles require the existence of international bodies with the authority and independence to make judgements about what the allowable carbon limits should be and what the technical facts are in regard to reserves and depletion.

Domestic Tradeable Quotas

This would, in turn, mean that internally to countries there would have to be a mechanism to regulate demand. This mechanism has also been well worked out - it is called Domestic Tradeable Quotas - an idea well dscussed in Europe that you can find described at length on www.dtqs.org. A country setting up a DTQ system would set an overall emissions budget in carbon units. Of that 45% would be allocated free to all households on an equal per capital basis. Companies and other organisations would have to buy their units from the government in an auction. There would be a market for DTQs so you could buy or sell them. People or organisations buying fuels would have to surrender their units when buying fuel in addition to paying cash. Different fuels would be rated according to their carbon content. With 1 kg of carbon dioxide equal to 1 unit you would have:

Natural Gas = 0.2per kWh

Petrol = 2.3 per litre

Diesel = 2.4 per litre

Coal = 2.9 per kg

Grid electricity (night UK) = 0.6 per kWh

Grid electricity (day UK) = 0.7 per kWh

Virtually all of this could be done with electronic cards using systems already in place for electronic debit and credit systems. If foreigners wanted to buy fuels they would have to buy DTQs at the going rate and there would be a market for DTQs - as would anyone who had forgotten their charge card.....

If we do not adopt rationing

So this is a situation of sophisticated rationing. Let's now look at what will happen if we do not have rationing in these ways. Nationally we recently had Tony Blair announcing new measures to reduce energy use - significantly they involved increased prices but did nothing to protect poorer and more vulnerable people. I don't remember the details but I do remember noting that there was nothing very equitable about them and that poorer people are likely to be harder hit. No surprises there I suppose.

Internationally Blair is also, in effect, backing a system where energy will be allocated on the principle of market power backed up by military might - the stuff about Saddam Hussein living up to UN resolutions would have more credibility were Israel not in breach of far more UN resolutions. As we have seen, behind the facade this war is about oil. It's a scenario in which the poor and the vulnerable will go to the wall. In this regard we should also remember what happened in the 1973 OPEC oil embargo against the US led to shortages at the petrol pumps and spiralling world oil prices - and it was the Third World that suffered most. When the supplier contries hit back it was not just the industrial countries that suffered. This was the beginning of the Third World debt crisis as countries borrowed to pay for the increase in their oil bills.

In fact there are many indications that the oil countries are looking for other ways of dealing in oil. Venezuela under Chavez for example is looking for swap arrangements with Cuba - oil in exchange for medical personnel to work with the poor of Venezuela. I dare say too that Islamic oil producing countries would like to go payments in Euros and also to funding poorer countries themselves while spreading their own brand of Islam.

Conditions where people will accept the need for rationing

Of course rationing will not be greeted favourably in the USA. The US government do not accept Kyoto let alone C&C. That's clear. Socialists that I know never tire of telling me that "the capitalists will never accept that". Indeed - they don't accept peaceful or legal ways of dealing in international relations either if it get's in their way. That defines what the struggle for the heart and mind of the public is all about. Alas, at the moment, the people in this country, let alone in the USA, are also unlikely, at the moment, to accept the rationing ideas. Yet things can change - and the more the consequences of war and conflict over oil become clear so I believe people may be more prepared to accept rationing as the only equitable measure in increasingly chaotic times.

The immediate situation (early March 2003)

For a war will certainly mean chaos and it could mean rapidly rising oil prices anyway. At the moment the world oil price is rather high - about $30 a barrel. The oil price could go a lot higher and in one scenario the war could mean real shortages effecting everyone. This has been brought about not only by the Iraq crisis but by political developments in Venezuela and elsewhere. It's ironic that as the US gets ready to invade Iraq it is actually currently importing a very large amount of Iraqi oil. The effect of a war could push things in one of two directions. In an interview in Der Spiegel a number of weeks ago former Saudi Oil Minister and former head of OPEC, Sheik Yamani argued that there were three possible scenarios: two extreme cases and one scenario that is something in between.

The two extremes - one would be a prolonged war in which the oil fields were torched and there were prolonged regional instability. (An article in the Guardian on 15th March features a conference organised by Yamani in London at which he expresses the view that, because of the low pressure in Iraqi oil wells, if Saddam Hussein succeeded in blowing them up, they could be ruined for all time. It would not be as easy as in the higher pressure Kuwait fields that were torched, to rescue the wells.) That would push prices to $100 a barrel and lead to a collapse in the world economy.

Such a collapse might lead to a run on the dollar as other countries withdrew from the US capital and financial markets. As it turns out the size of the US military budget is approximately the same size as its trade deficit. The US can finance both only because dollars are acceptable as a reserve currency and the rest of the world is prepared to lend back to the US banking and financial system. At leas one reason for the current conflict is also that some countries, most notable Iraq itself, have turned to Euros and other means as alternatives to the dollar as payment for oil. US power is not, therefore, as solid as it seems.

On the other hand, at the other extreme there would be a quick victory and the US would get the cheap oil that they want with the price of oil falling to $15 a barrel.

Some may imagine that, under the quick victory scenario, Iraqi oil is there for the taking by simply opening the valve, but in fact an immense amount of work, investment and, above all, time would be needed to rehabilitate the ageing fields and bring the undeveloped smaller ones into production. Under optimal conditions, production might double the current 2 Mb/d by 2010, but that would still meet much less than half US needs.

This war is about long term aims for the US. A military occupation of Iraq would place US forces in a strong strategic position from which to control oil supply from the entire region, quelling local insurrections and propping up puppet regimes. It can also build a pipeline through from Iraq to Haifa, as Sheik Yamani has suggested, thus bypassing the Persian Gulf and the Suez canal.

However in the short term oil shortages may lead to chaos in the world economy. Even with a quick war in which there is an apparent victory within a few weeks, within 6 months the political situation in Iraq may spiral out of control as the Iraqi people refuse to accept a status as American protectorate. Moreveover there is a likelihood that we will see conflicts like this again - as the US turns on Iran next. In these circumstances it makes sense to accept the inevitable and impose energy rationing as part of an alternative national and international settlement that will regulate a very difficult situation. There is a need to remove the need for war by accepting a more equalitarian world order, based on holding back on energy use and share it equally.

Brian Davey

16th March 2003

This desription of the ASPO model is taken directly from the ASPO Newsletter of February 2003.

The ASPO depletion model has been updated to take into account the 2002 reserve and production data published by the Oil & Gas Journal. It is a huge and difficult job to try to resolve the many inconsistencies. The Summary Sheet and the Production Forecast on the ensuing pages give the current assessment, but are no more than a working hypothesis, subject to continuing evolution. The following comments explain the approach followed.

 

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