the peak oil crisis: protests, tsunamis and deficits

FCNP | Thus far only one major oil producing state, Libya, has undergone so much political unrest that its oil production has been essentially halted. The loss of roughly 1.3 million barrels a day (b/d) of oil exports has already destabilized the oil markets and sent prices some $10 - $15 a barrel higher. Should the same fate befall a second or third major oil exporter, the world is unlikely to ever be the same again.

There is no end in sight to the unrest in the Middle East for its root causes run deep and are unlikely to be held in check with the traditional carrots and sticks. No matter how fighting in Libya goes in the next few months, the damage has been done and we are unlikely to see Libyan oil exports resume their former levels for quite some time. Although the Saudis seem to have intimidated away a recent challenge to the authority of the ruling family, the Kingdom's incursion in Bahrain early this week shows just how worried they are that Shiite dissent may spread down the causeway joining the two countries.

As the U.S. State Department pointed out in a recently leaked cable, the real threat to Saudi stability may come from a succession crisis and not from protesters in the street. The current King is ailing and his designated successor is not in much better shape. It is only a matter of time.

The real threat to Saudi stability may come from a succession crisis and not from protesters in the street.

The unprecedented series of disasters that struck Japan this week are of such a magnitude that they are sure to impact the global oil markets in the year ahead. Initially, the earthquake and subsequent events have driven down global oil prices, but whenever the radiation leak situation stabilizes, and the country gets back to business, it is clear that the Japanese will be importing considerably more oil and products, simply to clean and rebuild from the mess left by a 10-meter tsunami sweeping across much of their country. The permanent loss of at least six of the country's 54 nuclear power reactors will lead to the need to import more crude, natural gas, and oil products to keep Japan's highly industrialized economy functioning.

As about 30 percent of Japan's refining capacity was closed down by the earthquake and the floods and fires that followed in its wake, initially there will be a great demand to import refined gasoline and diesel. There is already talk of how this might impact prices on the U.S.'s west coast. When the refining recovers, the economy regains its balance, the need to clean up the massive damage and the rebuilding begins, the demand for imported oil is likely to set new records. All this, of course, assumes that the radiation leaks from the damaged reactors can be contained. If the contamination becomes widespread then Japan's government and people are likely to be preoccupied for an indeterminate period.

Our final new development is in Washington where the new majority in the House of Representatives is dead set on cutting $60 or perhaps $100 billion annually from federal spending. In a perfect world, these cuts would be spread around so that the Defense Department, Homeland Security, and the various entitlements would take some of the load. Alas, a disproportionate share of the cuts seems destined to fall on the energy programs that were designed to mitigate the overuse of fossil fuels and prepare us for an age when fossil fuels will not be so cheap or readily available.

It is only March and already Beijing has announced that its electricity consumption in February, a basic indicator of how fast its economy is growing, was up nearly by nearly 16 percent over last year. If China's economy is going to undergo a major setback that will lead to a reduction in its demand for oil, then it had better get going, 2012 is fast approaching.