Charles G. Darwin, a British physicist (and grandson of Charles Darwin) made a prophetic statement in 1952. “The fifth revolution will come when we have spent the stores of coal and oil... This change may justly be called a revolution, but it differs from all the preceding ones in that there is no likelihood of its leading to increases of population, but even perhaps to the reverse.” Simply stated, the countries that will “control” the major oil reserves in the world will reach unparalleled ascendancy, while those who cannot secure their future oil requirement will probably end up in the third world, or worse; regardless of where they stand at present.
Taking into account the various forecasts of the World Model of oil supplies, the years 2000-2030 probably sit at the peak of world oil resources availability. Several models contend that from these years onward the rate of discovery of new oil resources would begin an irreversible negative trend and fall below the rate of their consumption.
Dr. M. King Hubbert, one of the preeminent geophysicist of the 20th century described the uniqueness of oil as a commodity “There is a different and more fundamental cost of oil that is independent of the monetary price. That is the energy cost of exploration and production. So long as oil is used as a source of energy, when the energy cost of recovering a barrel of oil becomes greater than the energy content of the oil, production will cease no matter what the monetary price may be”
If we agree that higher prices provide incentive for companies to produce a larger volume, then to the extent that oil prices rise, so will this incentive of oil companies. Therefore, if oil depletion really does occur at an alarming rate, and world production of oil is beginning an irreversible decline, this profit incentive will also climb in correlation with rising prices. The real question remains- how much would we be willing to pay for a liter of petrol at the PSO fuel pump? Will we start using our vehicles less and less? What price will petrol be for airlines to become unfeasible for carrying passengers from Lahore to Karachi? The true answer lies in the understanding of the economic consumption pattern of finite resources. However less oil we use, there will be less oil buried inside the earth tomorrow. A decreased consumption may make it last longer but it will still end.
Oil will become an extinct natural resource one day. If it happens before any new technology or fuel takes over, the effects of a world without oil would be something more devastating, economically crippling and longer lasting than the combined economic loss of all wars and natural disasters in history! Most experts of the oil industry call it as the coming of a “de-industrialized society” Although we are likely to run out of oil before the next century takes over, barring any miracles; we are nowhere near having another technology ready to take its place in the foreseeable future. Even if a new resource of energy was introduced, it would take trillions of dollars in modifying and redeploying the infrastructure, fuel delivery and consumption systems to handle the new fuel.
The world’s dependence on fossil fuels therefore remains it Achilles heel. This is partly because no alternative energy substitution model has the same cost/benefit relationship as oil. Furthermore, new technologies are currently cumbersome and ineffective under anything less than ideal conditions. They simply do not possess the potential to replace oil worldwide. If the largest oil consumers- Europe, China and the US, cannot secure long term concessions to oilfields very quickly, their economic growth will become more of a guessing game beyond 2070. By even the most optimistic evaluation criteria, all forms of fossil fuel driven travel will simply cease to exist as a medium of mass transportation by 2000; fossil fuel driven automobiles will be seen in museums. The world economy will therefore have to find and implement a solution before oil runs out.
It is difficult to imagine what extent we might go to in our race to solve this energy dilemma since it is difficult to predict what the exact solution will be. On the demand side, when the price of any finite resource increases, however important or “demand inelastic” it may be, the consumption trends either reverse or consumption growth rates decline. A recent article in National Geographic Magazine consoles the readers by testifying that tar-sand deposits in North America "hold the equivalent of more than 1.6 trillion barrels of oil- an amount that may exceed the world's remaining reserves of ordinary crude available through current extraction methods. Exact oil availability figures are unproven, unreliable and un-audited. Furthermore, large volume production of oil from tar sand is not economical until crude oil prices consistently remain above $150 per barrel, or in rupee terms, close to Rs. 100 per liter, or newer technology is introduced that can extract it at a lower cost per barrel. Hydro-Cracking looks to be a promising new technology and it an possibly satiate the world's oil demand till the end of this century, but when prices of crude oil drop, it will become unfeasible to extract.
It is understandable that the US, which has about 5% of the world’s population, and consumes over 25% of the world’s oil will have a difficult time in finding popular substitutes. However, the US has a vibrant research program that ploughs vast capital and human resource on continuous research and development. It is therefore conceivable that it could develop cost effective substitutes before fossil fuels run out, or find viable means of extracting shale oil. In the case of countries like Pakistan, where resource planning is nonexistent and the future of one measly dam remains undecided since almost four decades, going from Lahore to Karachi would become a tedious and exorbitantly expensive adventure.
It is estimated that more than 50% of the world’s oil reserves are located in either the Middle East or Iran. The world oil reserves are estimated by oil companies and the US government at around 1200-3000 billion barrels. In 2004, the world’s current daily consumption of oil was around 76 million barrels per day, which is likely to exceed 120 million barrels per day in the next ten years. There are reasons to believe, and many experts suggest that it has been proven beyond a shadow of doubt, that the actual oil availability is closer to 600 billion barrels-much below the inflated figures given by oil companies to keep their stock exchange earnings strong. A team from Sweden's University of Uppsala presented the results of a comprehensive study on the world oil reserves in 2003. The team advised that the world's oil reserves could be up to 80 percent less than predicted.
The US, China and Europe are currently in a state of reticent panic to assure exclusive access to un-contracted petroleum resources in the Caspian Sea region, Russia, West Africa, Iraq, Iran, and Libya. The future availability of oil is especially crucial for consumers in North America, who on average, use up more than their body weight in crude oil each week. Even China forecasts a quintupling of its oil needs by 2030. Chinese oil firms have recently embarked on their first international oil venture by buying a 50 percent stake in a large Kazakhstan oil field, and have recently signed a huge contract with the government of Iran for supply of Natural Gas and Oil worth about 80 Billion dollars (at current prices)
Many people have long suspected that oil was one of the reasons for which US invaded Iraq. America's longstanding concern the safety with its oil supplies is nothing new. Newly declassified British documents suggest that President Nixon was prepared as a "last resort" to launch airborne troops to seize oil fields in Saudi Arabia, Kuwait, and Abu Dhabi to end the 1973-74 Arab oil embargoes.
The reason for US military and political expeditions in many parts of the World can be directly linked to its need to secure oil for its future. The US was involved in the recent election in Georgia to replace President Shevardnadze because that nation, though not having reserves itself, is the corridor for a $3 billion pipeline through which huge supplies in Azerbaijan, Turkmenistan, and Kazakhstan must pass through to reach the West. According to a recent New York Times report, a step that put Russian oil mogul Mikhail Khodorkovsky in jail recently was his secret plan to sell a major stake in his oil company, Yukos, to Exxon Mobil. Yukos represented about 2% of the world’s oil, and it is expected that the Russian government will buy back the company through the backdoor.
With this alarming backdrop, the US moves towards various Middle East countries that have proven oil reserves, especially Iraq and more recently Iran, begin to take on clearer dimension. The Bush government has expressed in no uncertain terms that it is not bound by the nuclear freeze deal brokered between EU and Iran, and can strike Iran preemptively if and when it feels the need to do so. It is also possible, in fact probable, that the US now sees China as a threat to its future oil procurement plans, and wishes to secure its “oil bases” it so desperately needs to drive its economic engine. It won’t be long before China also lines up prospective states for major oil investments, thereby beginning a high profile economic clash with the US over the right to oil. This will directly impact oil prices and push them upwards since the bidding nations will keep increasing price to keep the producers in their sphere of influence.
The geopolitical importance of the Middle East and its impact on the economies of the World are colossal and undeniable. With each passing moment, their importance grows. Barring any stunning, game changing invention, or the commercial application of an efficient technique for shale oil/gas extraction, the Middle Eastern oil is likely to remain the engine of the world economy (and the cause of most global conflicts) for the next sixty years.