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Oil, Jihad and Destiny

Part one of two part interview with cultural economist and author, Ronald Clarke

By Bill Moore

"By 2014 there will not be enough oil to sustain the world economy," warns cultural economist-turned-author, Ronald Cooke. "National wealth will evaporate. Now we can either manage a soft landing or let nature take its course."

In this case, "nature" could all too easily be defined as human nature, as nations -- motivated by fear -- selfishly grab what resources they can and damn the consequences. We see the hints of that in the current American occupation of Iraq.

That's why Ronald Cooke decided to investigate the facts, the myths and assumptions behind the debate over "peak oil"; what happens when global demand exceeds production; and can society manage a"soft" landing that will avoid bitter and potentially devastating resource wars?

"We have reached a fork in road of human existence, " he told me from his home in the California foothills east of Sacramento. "We can create an acceptable future or we can let hardship rule our lives."

Sobering words, but ones that bear reflection considering how much our lives depend on oil. For Cooke, himself, it was the troubling warnings of oil geologists like Colin Campbell and Kenneth Defeyes that spurred him to explore the potential consequences of life beyond the oil age.

He passionately wanted to know what happens to the world economically, politically, sociologically when the last cheap drops of sweet crude have gone up in smoke after a century-long power binge. Collecting as much data as he could, he began running the numbers through a computer model he created, a sort of Excel spreadsheet for peak oil.

The result was seven possible scenarios, which he ultimately narrowed down to the four most likely outcomes, with the wild card being the impact of radical Islam. It was those four possible scenarios -- which are the center piece of his book -- that I wanted to discuss with him.

But first, I asked him if he thinks it's possible for mankind to peacefully manage the transition into the post-hydrocarbon age.

"It's possible," he replied. However he added that our leaders have to recognize that there is a problem, something no one from the presidential candidates to Congress seems willing to discuss in public. And, alleges Cooke, it's not because they don't know about the problem.

"Congress has known since 1995," Cooke asserts, "...should have known." That was the year the Congressional research service issued a comprehensive assessment of peak oil. "The president certainly knows; he's tied into the oil industry", he added; an allegation apparently supported by comments in the current tell-all book by author Kitty Kelly entitled, "The Family".

"What we're running up against is no politician wants to talk about a problem of this magnitude," he continued. "Voters get upset."

Cooke, who is an economist by training, has worked as a market research and policy analyst for thirty-five years, both in industry and for the government.

"Predicting the future three to fifteen years out has pretty much been the core of my consulting work," he explained to me. He began developing his predictive model, which he applied to his future oil scenarios, in the 1970s, a model that his business partner asserts has been 85 percent accurate.

What would eventually become Oil, Jihad and Destiny, originally began as an outline for a novel, one which gradually evolved into a non-fiction study of the problem of oil depletion. In the process of researching information for his sister on ExxonMobil, he discovered the debate over peak oil and realized this would be the perfect dramatic conflict against which his fictitious characters could react.

"The next think I knew, it's like jumping down a big, black hole... But I was wise enough to apply my methodology to it right off the bat. It took about six months to understand enough about the oil industry to be able to write about it."

What resulted from applying the facts and figures supplied by BP, which is the only oil company to publish global production and consumption numbers, was a set of seven scenarios starting with a "No Change" case aimed at those who believe oil depletion is not really a problem. Here you can lump most economists and many oil company executives, at least publicly.

"Unfortunately, I could no make the numbers work. We are definitely into a dramatic transformation that is impacting the way we produce and consume oil."

When the numbers didn't make sense, Cooke than produced his "Best Case" scenario.

"Even under the best set of assumptions, we are in for a series of shortages that will curtail economic activity."

Cooke told me that his first two scenarios were relatively stable, "in terms of their assumptions and political environment".

"Although the political and military conflict would continue, there would be no upheaval in the character of any government in the Middle East, Africa, Asia or elsewhere. Oil production problems were assumed to be primarily caused by the realities of oil field geology, geography, engineering and so forth," he said.

This "best case" scenario didn't include the human factor, which his subsequent scenarios did.

"It became apparent, however, the production crisis and the political crisis scenarios, presented a better estimate of real-world events because they inject a realistic assessment of culture changes into the economic [impact] of oil depletion. And the outcome depends on how the Islamist threat plays out".

Cooke's "Production Crisis" scenario seems to most accurately depict the current state of events globally with lethargic oil field development, partially inhibited by Islamist-inspired political upheaval in the Middle East and elsewhere.

"This is currently happening, it's underway, so it's a very realistic way at looking at the human factors in these assumptions."

The weekly, if not daily, incidences of oil pipeline sabotage in Iraq clearly underscores the risks associated with trying to develop that nation's oil resources. Not only is production interrupted, along with exports, but so is exploration. Oil fields in Iraq were so mismanaged during the decade of US and British sanctions that they are in danger of collapse; and exploration for replacement reserves can't be initiated because of the violence and political instability in the country.

Iraq may be the last of the world's "low hanging fruit" in terms of cheap, sweet crude, but it sits in the middle of a veritable mine field. Rather than endanger personnel and capital, most oil companies will prefer to wait out events or explore elsewhere. The trouble is, there are fewer and fewer promising, relatively trouble-free places to look.

Cooke's fourth scenario, Political Crisis, assumes that the pace of political ferment, especially in the vulnerable Middle East and particularly in Saudi Arabia, accelerates. He notes in his book that successful military or terrorist attacks on just five key junctures in the Arab country's oil production and distribution system would halt production of up to two years, removing 6-8 million barrels of day from the world market with disastrous economic consequences.

He told me that since publishing his book, he's rerun his model using data acquired since the first of the year. He said that the basic conclusion of his model didn't change, but the time table has appreciably accelerated.

"The scenario for terrorist activity has accelerated much faster than I had originally anticipated". He pointed out that foreign oil workers – many of whom are from the West and are needed to find, develop and manage Saudi Arabia's oil reserves -- are leaving the country in record numbers for fear of their lives, hindering the discovery of replacement oil fields for those currently being depleted.

Despite or perhaps because Saudi Arabia can be consider the world's wealthiest welfare state, Cooke observed that two-thirds of the students graduating from university take degrees in theology, rather than engineering. There's been little incentive for many young Saudi men or women, where unemployment runs 25%, to 'get ahead' in the Western sense. So the nation has become dependent on foreign workers, especially in its oil sector, a situation Islamist extremists are clearly trying to exploit their advantage.

Further complicating the oil production picture is necessary field maintenance as wells and injection systems are relocated, taking them off-line for weeks or months, in order to keep fields productive.

Cooke also pointed out to me that oil production by region is not a steady, linear curve, but a series of jagged spikes and dips, which historically have been smoothed out over time by Saudi Arabia's ability to produce excess oil when called upon. He noted that it was the Saudis who came to the world's rescue in 1973 and 1981, during the Iran-Iraq war.

"So, consequently, we haven't had to feel the impact of resource depletion. Unfortunately, as we get to the peak of production, resource depletion kicks in as an important factor".

Using what he called a "classic bookkeeping" method, he looked at 30-years-worth of historical data on production and consumption on a region-by-region basis, and by trial-and-error, determined the mathematical relationships between the two columns of oil producing nations and oil consuming nations. He then ran those numbers forward, using various assumptions about production, consumption and the impact of political events and technology.

"I noticed over a period of time that production and consumption had to pretty well match, otherwise there were shortages. And when the shortages developed, invariably economic activity declined in the consuming nations," he stated, cautioning that these are scenarios only.

"These are not hard facts. These are not predictions of the future. What they are is a way of valuating available information. We develop scenarios on a set of assumptions. These assumptions are carefully outlined in each chapter, and then applied to the model and we can look at the outcome in a series of charts", many of which are reproduced in Oil, Jihad and Destiny.

"Any way you cut it, oil depletion is upon us, " Cooke warned, "and it is going to cause economic havoc for every industrial nation".

TO PART TWO

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Published: 02-Oct-2004

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