The financial meltdown, the credit crisis, and ensuing economic contraction—it can all be traced back to peak oil. Author Julian Darley, who knows a thing or two about dwindling resources, believes that high oil prices—caused by supply constraints not meeting demand—are the real cause of the economic crash, and until our new president and his administration face facts, they’ll just be fighting the symptoms rather than the disease.
America and the world wakes this morning to a landscape of new possibilities. We also wake up to a daunting list of problems, most of which are now well known. Yet still there is one problem that was never mentioned by either presidential candidate, no doubt for their own good reasons. The problem is one that has been waiting in the wings since 1859. Or 1846 if you live in Russia. These are the dates of the first oil wells in the world, and they mark the beginning of our dependence on oil, a dependence which is now being forced into reverse. Peak oil and decline has to become a dominant factor in political and business planning because otherwise, the wrong remedies are going to be applied to the wrong causal diagnosis. The world headlines this morning helpfully remind Obama and his new team that they face some severe economic woes. I am sure they are very grateful for that information. What they need to hear about are the underlying reasons for the financial meltdown, the credit crisis and ensuing economic contraction. Jeff Rubin, of CIBC, makes the case strongly in a recent report, that high oil prices – caused by supply constraints not meeting demand – are the real cause of the economic crash. The chart shows that all but one of the last five recessions have followed sharp rises in oil prices. Obama’s new economic advisers will surely also be looking at such graphs, but will they notice how dramatically different the 21st century price rise curve is, and will they ask why? Unless they do, it seems likely that we see economic alchemy being practiced rather than economic realism. In the past that has lead to exuberance and temporary consumer happiness. This time will be different.