State of the World 2005 Trends and Facts - Changing the Oil Economy

“Even as oil has become indispensable, its continued use has begun to impose unacceptable costs and risks.”

A Strategic Commodity

Industrial civilization is defined by the staggering abundance of energy it uses. The global consumption of useful energy per person is about 13 times higher than in pre-industrial times, even though total population has risen by a factor of 10 in the last 300 years. We have become a “culture of energy consumption.” And to date, most of that energy has come from fossil fuels, of which oil is the most highly prized. Oil saturates every aspect of modern life as a feedstock for countless products as well as an energy source, and has become the most important strategic commodity ever. Yet, at the same time, it has become a liability that threatens global security in three broad ways.

Oil and Global Economic Security

“The key actors on the oil stage—importing and exporting nations—enjoy much the same relationship as junkies and pushers: neither can easily do without the other.”

First, oil threatens global economic security because it is a finite resource with no clear successor and because the gap between supply and demand is growing. Oil, most of it imported, accounts for a large share of energy budgets in most developed countries: 36 percent in France, 39 percent in the United States, and 49 percent in Japan, for instance. (Developing countries are even more vulnerable because their imports are larger in relation to GDP.) Growing evidence suggests that rising demand, especially from nations such as China and India, will soon permanently outpace supply, leading to a longterm rise in prices. Meanwhile, the exporting nations are dependent in their own way, in that many of them—especially in the Middle East—have become accustomed over the years to the heavy stream of revenues from oil sales and have failed to use those funds to diversify their economies.

The widening of the supply/demand gap could be accelerated by the imminent peak of oil production, if the theories of a growing body of dissident geologists and oil analysts prove correct. They argue that the history of oil production and a careful analysis of current reserve estimates suggest that global oil output is likely to peak soon, perhaps within 10 years, and then drop off sharply. Already, oil production has plateaued or begun to decline in 33 of the 48 largest producers, including 6 of OPEC’s 11 members.

Even under conditions of steady but moderate growth in demand, such a drop in supply would be troublesome. But its occurrence just when the huge developing economies of India, China, and other awakening economic giants are poised to take off could spell major trouble for the global economy.

Oil’s Global Role

  • Global energy consumption is about 130 times higher than in pre-industrial times.
  • Oil is the single largest source of energy, accounting for 37 percent of global energy production.
  • The United States accounts for one quarter of global oil consumption. In the U.S, oil price spikes have preceded 9 of the 10 recessions since World War II.
  • Oil accounts for 36 percent of the total energy budget in France, 39 percent in the United States, 49 percent in Japan, 51 percent in Thailand, and 77 percent in Ecuador.

Oil and Civil Security

“Countries that depend on oil revenues tend to be more authoritarian, more corrupt, more conflict-prone, and less developed than countries with diversified economies.”

Second, oil threatens civil security by undermining peace, civil order, democracy, and human rights in many regions. This effect takes at least three forms: great-power actions, the “natural resource curse,” and terrorism.

Great powers have sought reliable access to oil since at least 1912, when Great Britain converted its fleet from coal to oil and established a stake in Iraq’s oilfields to ensure the ascendancy of the Royal Navy. Other great powers, including the United States, have also wielded their military and economic strength to secure access to oil supplies, interfering in the affairs of other countries and supporting repressive regimes when useful. The 1981 Carter Doctrine asserted the U.S. right to treat any attempt to control the Persian Gulf as “an assault on the vital interests of the United States.” By one mid-range estimate, the United States spends at least $49 billion every year on the military presence necessary to ensure Middle Eastern oil flows.

The “natural resource curse” refers to the tendency of mineral wealth to support corruption and conflict rather than economic growth and development. It can be seen at work in Saudi Arabia and other Persian Gulf nations, and in Angola, Cameroon, Colombia, Ecuador, Equatorial Guinea, Indonesia, Nigeria, the Republic of the Congo, Sudan, and Venezuela, among others. It is often aided and abetted by corporations acting with the knowledge of corrupt national governments. In general, oil and other mineral wealth also appear to impede the establishment and preservation of democracy where governments use that wealth to reduce pressure for democratic reform by keeping taxes low and spending high, or alternatively by spending it on strong security apparatus to suppress dissent.

As for terrorism, the oil link became publicly visible in the wake of the attacks of September 11, 2001, when it emerged that most of the aircraft hijackers were Saudi nationals. Saudi oil money—as much as $70 billion over the years—has long supported a network of charities that established thousands of mosques and schools run according to the tenets of Wahhabism, a fundamentalist strain of Islam, as well as paramilitary training camps and terrorist recruitment operations. This network, funded largely by revenues from sales of oil and related products to Western consumers and provoked by the growing U.S. military presence in Saudi Arabia and elsewhere in the Middle East, created the terrorists who attacked the U.S. embassies in Kenya and Tanzania, the USS Cole, the World Trade Center in New York, and the Pentagon.

Oil and Climate Security

“Oil alone accounts for over two-fifths of total emissions of carbon dioxide, the chief human-caused greenhouse gas.”

The third great oil-related threat to global security is to the stability of the world’s climate. Oil is the world’s dominant transportation fuel, producing over two-fifths of total emissions of carbon dioxide, the chief human-caused greenhouse gas. As carbon dioxide concentrations build and the Earth continues to warm, the effects are likely to include more severe and frequent storms, floods, and droughts; prolonged and more frequent heat waves; the spread of diseases such as malaria and dengue fever; and ocean-water acidification, coral bleaching, and sea level rise. Existing threats to security will be amplified as climate change affects regional water supplies, agricultural productivity, financial flows and economies, and migration patterns. Although the huge global reserves of coal remain a larger threat to climate stability, ending oil use is imperative if carbon emissions are to be reduced.

The Toll of Climate Change

Climate change, driven in part by heavy carbon dioxide emissions from combustion of oil, already kills an estimated 160,000 people each year—many more than terrorism.

The Fork in the Road

“Among the security-related problems of oil, nothing improves with time; everything gets worse.”

Taken together, these three factors—economic security, civil security, and climate security—make a compelling case for ending oil dependence and moving rapidly toward a post-carbon energy regime. The tools—mainly conservation, energy efficiency, and renewable energy technologies, leading ultimately to a hydrogen energy economy—already exist. Responsible assessments suggest that the transition to a largely renewables-based energy economy could be made within a few decades, either without undue economic distress or with actual economic benefits.

The key is government policies—for instance, policies to encourage electric utilities and their customers to seek efficiency gains and savings from conservation. Another valuable initiative would be redressing the vast imbalance in subsidies; tens of billions of dollars every year (hundreds of billions, by some estimates) support the fossil-fuel and nuclear industries, far more than is directed to renewables.

Progressive government policies to ensure market access, reform subsidy policies, and create appropriate incentives are largely responsible for the remarkable market gains made by wind and solar power in the last decade. The theoretical potential of energy from renewables—even using current technologies, let alone the superior technologies that will inevitably emerge over time—is far greater than total global energy consumption. Wholesale adoption of a supportive suite of policies would unleash the potential of renewables and do much to usher in the age of sustainable energy.

Making the Energy Transition

  • After the oil embargo of 1973-74, the U.S. economy improved its energy productivity (the amount of economic output per unit of energy used) by 64 percent between 1975 and 2000.
  • Raising the year-2000 average fuel economy of the U.S. light-vehicle fleet by 3.25 miles per gallon would have saved as much oil as the U.S. imported from the Persian Gulf in 2000.
  • Total worldwide investment in renewable energy exceeded $20 billion in 2003. Wind- and solar-generated electricity are the fastest-growing sources of energy in the world.

Discussion Questions:

  1. How great of a threat does—or could—oil dependence have on the security of your country? In what ways does this dependence affect your country's security and your own daily life, and what are some of the risks of continuing with "business-as-usual"?
  2. How strong are the links among oil production and use, climate change, and security? In what ways might a changing climate lead to conflict?
  3. What role should your local or national government play in reducing the threats associated with oil use?
  4. How might the international community work together to address these threats?

Further information and the references for this material are available in State of the World 2005.