Saturday, August 18, 2007

"Tough Oil"

Michael Klare - author of the important book 'Blood and Oil' - has written an extraordinarily informative summary of various well-placed oil industry and geology experts who are sounding a unison note about a future of 'tough oil.' The implications of his summary are bracing, if not alarming: we face together a future of costlier, harder-to-reach energy resources upon which modern civilization relies for nearly everything it takes for granted. The basic commodity of our modern life is going to become harder to procure, meaning, in effect, it will be less affordable, i.e., less available. We are now facing a future of definite material limits for which we are woefully underprepared.

Now, our techno-optimist friends tell us that higher prices will be the market signal which will bring about a flurry of innovation. Basically, we can afford to wait until we feel the pinch. However, the problem with this touching faith in markets is that it presumes sufficiently ample amounts of capital with which to make the investments and finance the ultimate transition from one major energy source to a yet undiscovered alternative. If the market 'volatility' of the last few weeks should teach us anything, it is that, in our times of overextended credit and our national debtor status, the easy presumption that there will be enough 'money' (so-called) for investment is spurious at best. We have just gone through a small fire drill during which we familiarized ourselves with what it looks like when trillions of 'investment' dollars disappear in the blink of an eye (4.78 trillion, by one estimate). Having witnessed what non-liquidity looks like up close and personal, the assumption of ample credit for future investment is one that only a damn fool would hold. With the drying up of oil wells will also come the drying up of 'liquidity' in other forms, most notably, its financial form. The Fed can print up as much funny money as it wishes, but when the Chinese and Saudis stop buying our bonds because of the declining dollar and the lowered rate of return (observe what happened to the dollar against foreign currencies when the Fed lowered the discount rate on Friday), we'll find that all those dollars won't be buying us much at all - including not only some nifty new energy form, but whatever oil might still be sloshing around the system. The steady drumbeat of announcements from Africa, Russia and nations of the former Soviet Union of deals to sell oil and gas to China, and the growing potential of a Russian-Iranian oil cartel, only points out the direction in which the oil will be flowing in the future - namely, to those clients who can foot the bill. At least we still have our impressive military - increasingly, that's all we've got. Anyone who thinks we're going to pull out of Iraq any time soon is drinking some funny Kool-Aid. Especially now that we're dividing the spoils for real.

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