David Fridley, an expert on oil economics, worked under Chu. In an interview given in 2009, Fridley claims, “[Chu] was my boss…He knows all about peak oil, but he can’t talk about it. If the government announced that peak oil was threatening our economy, Wall Street would crash. He just can’t say anything about it.” (Morrigan)
A whistleblower at the IEA alleged that oil reserves had been overstated, and that the IEA had downplayed the lowering rates of production because it feared panic could spread on the financial markets if the figures were brought down further. ‘Politicians are terrified of mentioning peak oil,’ says Chris Skrebowski, director of Peak Oil Consulting and former editor of respected industry magazine Petroleum Review. ‘They are frightened of the social and financial reactions. Peak oil has been placed on the pile marked “too difficult” (Rowe).
In a new book, former oil geologist and government adviser on renewable energy, Dr. Jeremy Leggett, identifies 5 “global systemic risks directly connected to energy” which, he says, together “threaten capital markets and hence the global economy” in a way that could trigger a global crash sometime between 2015 and 2020. According to Leggett, a wide range of experts and insiders “from diverse sectors spanning academia, industry, the military and the oil industry itself, including the International Energy Agency” are expecting an oil crunch “within a few years,” most likely “within a window from 2015 to 2020.” (Ahmed)
As you can see from this excerpt of the German Military Peak Oil Study, the effects go beyond just a stock market crash:
After peak oil alternative fuels will not compensate leading to a loss of confidence in the markets. Increasing oil prices will reduce consumption and economic output leading to recession.
- Higher transportation costs will make the prices of all traded goods rise. Trade volumes would decrease, and some nations would no longer be able to afford to import food.
- National budgets will be devoted to securing food and dealing with unemployment, leaving little funding to invest in oil substitutes and green technology. Revenues would keep falling as a result of the recession and declining tax revenue.
In the medium term, the global economic system and all market-oriented economies would collapse.
- Corporations would realize the contraction will go on for a long time
- Tipping point: In an economy shrinking over an indefinite period, savings would not be invested because companies would not be making any profit. For an indefinite period, companies would no longer be in a position to pay borrowing costs or to distribute profits to investors. The banking system, stock exchanges and financial markets could collapse altogether. In theory, there are industries that could profit from the situation. The oil industry or companies in the green-tech sector would certainly have an increasing demand for capital. Given the companies’ environment, in particular the dependence of these industries on (international) value chains and infrastructures, as well as the dramatically changing conditions on the demand side, it would be implausible to expect “islands of stability” which continue to exist on a “micro level”.
- Financial markets are the backbone of global economy and an integral component of modern societies. All other subsystems have developed hand in hand with the economic system. A completely new system state would materialize.
Other likely consequences
- Banks left with no commercial basis. Banks would not be able to pay interest on deposits as they would not be able to find creditworthy companies, institutions or individuals. As a result, they would lose the basis for their business.
- Loss of confidence in currencies. Belief in the value-preserving function of money would dwindle. This would initially result in hyperinflation and black markets, followed by a barter economy at the local level.
- Collapse of value chains. The division of labor and its processes are based on the possibility of trade in intermediate products. It would be extremely difficult to conclude the necessary transactions lacking a monetary system.
- Collapse of unpegged currency systems. If currencies lose their value in their country of origin, they can no longer be exchanged for foreign currencies. International value-added chains would collapse as well.
- Mass unemployment. Modern societies are organized on a division-of-labor basis and have become increasingly differentiated in the course of their histories. Many professions are solely concerned with managing this high level of complexity and no longer have anything to do with the immediate production of consumer goods. The reduction in the complexity of economies that is implied here would result in a dramatic increase in unemployment in all modern societies.
- National bankruptcies. In the situation described, state revenues would evaporate. (New) debt options would be very limited, and the next step would be national bankruptcies.
- Collapse of critical infrastructures. Neither material nor financial resources would suffice to maintain existing infrastructures. Infrastructure interdependences, both internal and external with regard to other subsystems, would worsen the situation.
- Famines. Ultimately, production and distribution of food in sufficient quantities would become challenging.
Ahmed, N. 28 Mar 2014. Ex govt adviser: “global market shock” from “oil crash” could hit in 2015. The Guardian.
Bundeswehr Transformation Centre, Future Analysis Branch. Nov 2010. Armed Forces, Capabilities and Technologies in the 21st Century Environmental Dimensions of Security.
Hirsch, R. L., et al. 2010. The impending world energy mess. What it is and what it means to you! Apogee Prime. Forward by Dr James R Schlesinger, first U.S. Secretary of Energy.
Morrigan, Tariel. Oct 2010. “Peak Energy, Climate Change, and the Collapse of Global Civilization: The Current Peak Oil Crisis“. University of California, Santa Barbara
Rowe, Mark. July 2010. When will the oil flow slow? Oil is becoming more difficult to obtain, and research suggests that it won’t be long before we’re unable to meet global demand. Geographical magazine 82 vol 6.