Robert Rapier has posted a peak oil piece based on a German military think tank study. The new report sees significant risks arising from an unavoidable peak in oil production:
- Economies stop functioning: In addition to the gradual risks, there might be risks of non-linear events, where a reduction of economic output based on Peak Oil might affect market-driven economies in a way that they stop functioning altogether, leaving the range of a relatively steady downward trajectory.
- Slow decline of trade: Such a scenario could pan out by an initially slow decline of trade and economic activity, combined with higher stress on government budgets from lower tax income, higher social cost and growing investment into alternative technologies.
- Crash of markets: Investment will decline and debt service will be challenged, leading to a crash in financial markets, accompanied by a loss of trust into currencies and a break-up of value and supply chains – because trade is no longer possible.
- Famine and total collapse: This would in turn lead to the collapse of economies, mass unemployment, government defaults and infrastructure breakdowns, ultimately followed by famines and total system collapse.
Overall, the authors expect a reduction of ‘free market’ mechanisms in oil trade, and a rise in more protectionism, exchange deals, and political alliances between suppliers and customers, which could lead to significant geopolitical shifts.
Equally, the authors expect this interdependency to shape foreign affairs of oil importers, making them more tolerant towards rogue behavior of suppliers out of sheer need.
Higher volatility and loss of trust are seen as possible outcomes in a world where oil supplies are limited, increasing the need for ‘oil related diplomacy’ and thus increasing risks for moral hazard among all actors, which in turn decreases