Post Peak Oil World: A Description
There is little need to attempt a guessing game about the landscape of a post-Peak Oil world under the bleakest scenarios – there are two recent historical examples of Peak Oil societal collapse that show us what a worst case post-Peak Oil world might look like – The Soviet Union and Cuba, with differences.
Humans tend to minimize the risk of negative outcomes when we find it difficult to visualize such scenarios. That’s one reason economic bubbles form, and then collapse only when it’s apparent that the sustainability of the positive outcome is completely outlandish and we run out of road. If we set aside the idealogical version of history, the collapse of the Soviet Union provides a real world test case of a post-Peak Oil scenario from which we can learn – the arrival of Peak Oil production in the Soviet Union and subsequent production decline was a key contributing factor in the USSR’s collapse. What’s more, post-collapse conditions during the 1990s in Russia and Cuba, which suffered oil supply cutoff from its former benefactor the USSR, provide a description of our potential post-Peak Oil world.
The reasons for the collapse of the Soviet Union are many and complicated, but I would simplify as follows:
1) the Soviet Union was reliant on oil (and natural gas) exports for earning hard currency to by good on the world market, particularly grain, of which it had shortages in domestic production. Grain deficits increased over time, but were present from right after WWII.
2) The 1970s oil price shocks were a boon to the Soviet Union.
3) Reagan era military spending competition and the USSR’s Afghanistan adventure stressed the Soviet budget beginning in the 1980s.
4) Saudi Arabia flooded the oil market from 1985 in reaction to the Soviet invasion of Afghanistan (persuaded by U.S.). Oil prices crashed and helped to break the Soviet budget and precipitated balance of payments crisis almost immediately.
5) From 1985-1988, the USSR borrowed heavily from western banks (eg. Deutsche Bank) to cover foreign currency shortfalls so that it could import grain. The Soviets put significant attempts into increasing oil production, but in 1987 production reached a peak of 12.5 million barrels of oil per day.
6) As soon as 1989 western banks would no longer lend. Oil production was now falling.
7) The Soviet economy went into tailspin – there were shortages of food and oil production continued to fall.
8) Except for the 3-day coup attempt, the Soviet Union collapsed relatively quietly two years later in 1991. Its Eastern European client states broke free relatively peacefully, with the knowledge that the Soviet Union would make no attempt to stop them since they would otherwise not receive the $100 billion in emergency loans they required and were requesting from the West.
The above chain of events is laid out in detail by Yegor Gaidar (Soviet economist, brief Russian Prime Minister in 1992 and author of the Russian “shock therapy” reforms) in a piece titled The Soviet Collapse available the American Enterprise Institute. Also helpful is a piece by Richard Heinberg called Smoking Gun: The CIA’s Interest in Peak Oil.
After the collapse, oil production in the FSU (former Soviet Union) collapsed by more than 40% and there was a precipitous drop in living standards (down 50%), an increase in poverty incidence from 1.5% to nearly 50%, a decrease in life expectancy by 7 years for men and 3 years for women, a significant increase in alcoholism and other diseases, a significant increase in crime and corruption and violence, a significant loss of governmental authority over the state’s organs (bureaucracy and military), a collapse of the money economy replaced by barter, debt defaults across the board and hyperinflation. This was the stark picture of a post-Peak Oil economy in free fall over a period of just one decade and with outside support (from the West). Measured in today’s dollars Russian per capita GDP fell from about $15,000 in 1989 (vs. $34,000 for the US in 1989) to about $7,000 at its low point in 1996 (by comparison, US GDP per capita is more than $45,000 today). Only in recent years has Russian per capita GDP returned to pre-crash levels to reach about $15,000 per capita.
It is important to understand that the Russian (and FSU) economy recovered in an environment where aid was available from outside and the global economy was growing. In fact, the Russian economy made its greatest recovery during the past decade, a period when commodity prices, especially oil and gas, were in secular upward trends and this brought great benefits to Russia as a key exporter of fossil fuels, minerals and precious metals. Russian oil production bounced back, but never to reach its previous peak (side note – it’s possible to have “double peaks”, as one of the reason for Russian oil production collapse was lack of credit, but which was restored in the 2000s; also incremental western technology helped). Under a Global Peak Oil scenario, we will have no outside help to cushion the playout of a bleak scenario and help with a recovery.
Finally, we should note that what were the weaknesses of the Soviet system in a Cold War in some ways turned into advantages in a post-Peak Oil scenario. Conversely, what are advantages of a democratic capitalistic system in other times, may be disadvantages in a post-Peak Oil world. Dmitri Orlov, a Russian born engineer and writer, has a great piece comparing the USSR and USA discussing comparative advantages and disadvantages called Closing the “Collapse Gap”: The USSR was Better Prepared for Collapse than the US. It’s well worth reading.
As stated at the beginning of this post, Cuba also provides an excellent picture of what a post-Peak Oil economy might look like. Following the collapse of the Soviet Union, Cuba suffered an oil shortage because it could not afford to buy oil on the open market in sufficient quantities, whereas as previously it had received its supplies on concessional terms and in barter exchanges. Megan Quinn wrote a good piece at Global Public media describing Cuba’s transition post-Peak Oil titled The Power of Community: How Cuba Survived Peak Oil. It provides a positive outlook on how individuals and society can adapt to a lower, simpler standard of living. Cuba lost 80% of its export market and GDP fell by more than one-third. But people adapted by cooperating.
Follow us in a reader, your homepage or on Twitter:
Other Options: Click Here to Subscribe by Email or Email to a friend, share on your social network or bookmark:
Comments
4 Responses to “Post Peak Oil World: A Description”Trackbacks
Check out what others are saying...[...] Post Peak Oil World: A Description [...]
[...] Description of a Post Peak Oil World following along the lines of the post directly above, but significantly more detail on post collapse conditions Russia and Cuba and how both adapted, plus discussion of the advantages Soviets had over present day US/Canada/Europe in facing the challenge of an oil collapse. [...]
[...] itself after a period of chaos. (For a glimpse at what such a world might look like, review the link Soviet and Cuban collapse Peak Oil collapse and this link discussing how Peak Oil could devolve into a hyperinflationary economic [...]
[...] If you would like to read about what happens in a hyperinflationary economy, check out Post Peak Oil World: A Description, a previous Sticky Feet post that describes the post-Soviet Union and Cuba experience in light of [...]