Our Finite World

Why Oil Shortages May Bring Lower Prices–and Recession

Posted on June 29, 2026 by Gail Tverberg

There have recently been many warnings about near-term oil shortages stemming from the conflict in Iran. Most analysts assume that shortages mean higher prices. As I will explain, the dynamics of a self-organizing economy suggest the opposite outcome — lower prices, deepening recession, and shortages of goods and services that have little to do with price.

A cartoon scene featuring a bluebird on a cliff, looking confidently at a surprised coyote who is about to fall off the edge, with a yellow sky in the background. — Figure 1. Wile E. Coyote and Road Runner cartoon showing Wile very surprised after he runs past the edge of the cliff. Source.

Rather than high prices, my major concerns are recession and the disappearing availability of goods and services that we rely on. This might be similar to the empty shelves that many stores experienced in 2020 and 2021. There may also be new government restrictions, intended to work around the reduced oil supply in a way that will allow essential services to continue to operate normally. Oil prices are likely to fall below $40 per barrel, as they did in 2020 with Covid restrictions.

In this post, I will try to explain why this counterintuitive outcome — shortages leading to lower prices rather than higher — is what the self-organizing economy tends to produce. Along the way, I will look at the current state of oil reserves, why the conflict with Iran is unlikely to be quickly resolved, and what the price behavior of oil since February 28 tells us. I will also step back to consider the broader picture: why war can seem like a solution to struggling economies, and what the 2020 Covid experience might teach us about what lies ahead.

[1] Reserves of already-pumped US oil have dropped to concerningly low levels.

On June 17, President Trump said, “We will run out of reserves in about four weeks without a deal.” According to the article, we are not certain whether Trump intended to apply this statement to US or world emergency reserves.

Also, according to this recent video, the US’s largest tank farm seems to be very close to the minimum level at which crude oil can be withdrawn from its tanks. And, on June 23, MSN said, “America may see actual gasoline shortages by July 4.”

The already-pumped oil in storage is intended to be used as a buffer if there are variations in supply or demand. The reason that these buffers are falling low is because considerable oil from them has already been used to mitigate the shortfall in crude oil supply to date.

The shortfall in the supply of crude oil supply cannot be expected to disappear quickly. There has been considerable damage to infrastructure in Iran and elsewhere. It will take years rather than months for this to be repaired. In countries where oil production has been shut in, some wells are likely to produce less after being reopened following many months of closure. Furthermore, Iran has no incentive to completely reopen the shipping lanes, since keeping them potentially closed has the potential to raise oil prices per barrel. Higher oil prices would help the finances of Iran.

[2] Perhaps because of concern about low buffer supplies, the US has negotiated a deal with Iran that seems unfavorable to the US.

Information keeps coming out that indicates that Trump’s current Memorandum of Understanding (MOU) is very favorable to Iran. It looks as if the MOU has been written as if Iran won the war. We are also seeing that other countries have begun acting as if Iran has indeed won the war. For example, on June 23, a joint statement was issued by Iran and Oman. The two countries seem to be co-operating in setting up the collection of funds from ships passing through the strait to cover insurance and other costs.

If we are dealing with a “done-deal,” and the US is coming out poorly, the level of conflict within the US is likely to rise. Many people will be angry with Trump for getting the US into the war to begin with. Unfortunately, there is likely close to nothing we can do about this situation.

[3] Trump or another leader cannot restart the war against Iran and expect to do any better.

A major problem is that the US has substantially depleted its ammunition supplies, and it will take years to replenish them. While the US could perhaps launch a short attack, it would not be able to carry out a sustained campaign for very long.

Another issue is that the armaments that the US has stocked to date are designed to be used in a different type of war than the one that is being fought today. The US needs drones and close-by locations from which to launch them. Iran damaged most of the US’s bases that are close to Iran in the conflict that began on February 28. Without substantial rebuilding, the US has no functioning bases close to Iran from which to launch such drones.

Restocking armaments will likely take several years, especially if new types are needed. Adding to the difficulties of the US is the fact that China has been the primary source of many critical minerals used in the production of high-tech goods and ammunition. In recent years, China has restricted access to these critical elements. The US is now developing mines for some of these minerals, but setting up entire supply chains will take years.

[4] One motivation for attacking Iran might have been to raise oil prices to a higher level.

Based on their models, economists typically reach the conclusion that inadequate oil supplies will lead to high oil prices. It is likely that President Trump and his advisors believed that inadequate oil supply would lead to high oil prices.

Some analysts, including me, would argue that the models of economists are very inadequate; they give misleading indications by leaving out the complex self-organizing nature of the economy.

Higher oil prices are sometimes desirable because they encourage more oil extraction. For example, higher prices allow marginal wells to continue to be profitable longer. They can also make a new, higher-cost source, such as tight oil from shale, attractive for drilling. Looking ahead, higher oil prices would make it easier to get oil company support for ramping up oil production in Venezuela.

Figures 2 and 3 show the connection that higher oil prices seem to have had in encouraging tight oil extraction from shale. Figure 2 shows historical oil prices, adjusted for inflation. Noted on this figure is my view of whether prices were high enough to encourage extraction from more difficult locations.

Line graph showing the trend of Brent equivalent oil prices from 1925 to 2025, with annotations highlighting periods of low prices affecting extraction costs. Key points include 'Low cost of extraction; Low sales price - All happy' and 'Prices again too low'. — Figure 2. Figure showing historical average annual inflation-adjusted oil prices, based on data of the *2025 Statistical Review of World Energy,* published by the Energy Institute. The 2025 average oil price is estimated based on EIA data. Comments on price levels have been added, as well. An underlying issue is that the price of oil extraction has tended to rise faster than inflation.

Figure 2 indicates that prices started to run up in the 2003 to 2008 era, when China started ramping up its manufacturing, and thus its demand for oil. In this same timeframe, there was also a growing demand for housing in the US, thanks to very liberal underwriting standards for home mortgage loans. Thus, the total demand growth for oil was very high.

Figure 3 shows that production of tight oil started ramping up in 2009, after oil prices had been rising for several years.

Graph depicting monthly U.S. tight oil production by formation, measured in million barrels per day from 2009 to 2025. Notable formations include Permian, Bakken, and Eagle Ford, with a significant rise in production levels over time. — Figure 3. Monthly tight oil production in figure produced by the EIA

Another factor in the growth of tight oil production was the availability of cheap credit after 2008, but this has tended to disappear since 2021. Now, tight oil production seems to be leveling out, leading to rising concerns that tight oil production may soon decline, especially if credit is no longer cheap. Having higher oil prices might help postpone the decline of tight oil.

[5] Oil prices since the war started on February 28 have not bounced very high. Recently, they have tended to fall back, close to their pre-war level.

A line graph showing the WTI oil price trend from February to June, indicating fluctuations around $60 to $140, with a notable increase following the marked date 'Iran Conflict Began' on February 23. — Figure 4. West Texas Intermediate benchmark oil prices, mostly based on EIA data. Most recent points based on Wall Street Journal charts. Amounts through June 26, 2026.

The first thing to note is the fact that the prices on Figure 4 do not reflect the actual prices to the consumer, which have often been greater. The cost of transporting oil has jumped in many markets, but this higher transport cost is not reflected in the “West Texas Intermediate” price of oil, displayed in this chart. These higher prices at the pump have led some of the more price-sensitive buyers of oil products to cut back on their purchases.

Second, there is a lag issue regarding how soon the impact of missing supply actually hits the market. The slow transit time of oil from the Middle East to markets means that the actual disruption of supplies did not hit until at least 50 days later. If crude oil first needs to be processed by local refineries and then the oil products shipped to customers, the lag would be even greater–perhaps 75 or 100 days in total. Thus, much of the price increase to date may be based on a fear of shortages, rather than on an actual shortage issue.

Third, there have been some changes that impact oil “demand.” Some consumers have been told by their governments to work from home or otherwise restrict their driving to save on oil consumption. Also, some flight schedules have been cut back. Recently, Ukraine has been targeting some of the oil infrastructure of Russia, leading to reduced gasoline and diesel availability within that country. All these issues have tended to reduce the demand for oil. The lower demand acts to hold down oil prices.

A fourth issue has to do with worldwide economic conditions before February 28. Even before the war, much of the world was in close to a recessionary situation. There were very many low wage earners who could not afford much beyond the basic necessities of life. Even a small run-up in oil prices tends to affect food prices because oil is often used in farming operations and food is usually transported to market using oil. With higher food prices, poor consumers were forced to cut back on other purchases. This recessionary dynamic can be expected to get worse if oil prices inch up even a bit.

[6] I expect that oil prices will continue to remain relatively low, or they will only briefly rise to high ($150+) levels, even if there are actual oil supply disruptions.

I expect that the dynamics we have been seeing since February 28 will continue, and may intensify. Governments will add new restrictions that will reduce oil use. Airlines will go bankrupt, or they will reduce flight schedules. Recession will become even more of a problem. These issues will tend to reduce usage without raising prices.

[7] What we may see more of is broken supply chains.

There will be more signs in grocery stores and in home product stores saying, “This product is temporarily unavailable.” Car repair shops may tell us that a required replacement part will not be available for several months. Physicians may tell us that a medicine or chemotherapy drug that they normally use is, at this time, unavailable.

[8] The operation of the economy depends on an adequate supply of many kinds of energy. If oil supply is reduced, an economy needs to shrink to a smaller size to match. This is what leads to recession.

One reason for the above observation is that we know that our own vehicles will not operate without whatever fuel they are designed for. This is clearly also true for all the delivery trucks in the world, and for farm machinery and for ships that transport goods across the ocean. With less fuel, fewer trips of many kinds will be made. Workers will be laid off. This dynamic sounds a lot like recession.

The expected lower world oil supply in the near future is not an issue that can easily be resolved. We are already seeing that even with a supposed settlement, disruption in oil supplies seems likely to continue and even to worsen, as the various limits on buffer supplies are reached. Unfortunately, we cannot expect the situation to be completely fixed for several years.

Furthermore, the economy is facing even more disruptions than I have outlined above. For instance, Ukraine has been disrupting Russia’s oil infrastructure with drone attacks. There have also been disruptions to sulfur exports from the Middle East. Sulfur is used in many ways, including as a fertilizer and in the production of sulfuric acid, which is used in the mining of uranium, among other things. In addition, there have been disruptions to liquefied natural gas (LNG) exports from Qatar. The lack of these important products will tend to further damage supply chains and lead the economy deeper into recession.

[9] We are ultimately dealing with multiple not-enough-to-go-around scenarios. This situation will tend to increase conflict in the world.

The dynamic we are dealing with is similar to that in the game of Musical Chairs.

Seven red chairs arranged in a circular formation, casting shadows on a white background. — Figure 5. Chairs arranged for Musical Chairs Source: Fund Raising Auctioneer

The game of musical chairs is played in rounds. Players walk around the edge of a circle of chairs while music is played. When the music starts, the number of players is equal to the number of chairs. In each round, one chair is removed. The music plays and then suddenly stops. The players must then scramble to grab a chair. Since the number of chairs is now one fewer than the number of players, small fights can ensue.

The problem is basically, “Not enough to go around.” War often sounds like a reasonable solution to leaders.

[10] War can seem like a solution.

Strangely enough, war has multiple advantages to economies that are suffering from difficulties related to low commodity prices and, indirectly, low wages in related industries. One commodity is food. If food prices are too low, farmers will be unhappy that their earnings are low. They may stop farming and try to make a living from putting their land into a land bank and working elsewhere.

If oil prices are low, the oil industry can experience pockets of low wages. There have recently been reports of lockouts and strikes in the oil industry. I would expect these labor actions to be most prevalent where oil fields are depleted.

If a government announces a war, it looks like the government is “doing something” about the country’s problems. There is suddenly employment, either as a soldier, or in building armaments. GDP tends to rise because the war leads to a larger share of the population working. The war can be used to justify the additional government debt needed to hire the additional workers. What convinced me of this relationship was this chart, showing a huge increase in US GDP during World War II:

Line graph showing the US 3-year average percentage change in real GDP from 1932 to 2024, with fluctuations highlighted during the 1940s and gradual stabilization in later years. — Figure 6. Three-year average increases in US inflation-adjusted GDP, based on data from the US Bureau of Economic Analysis. The last point is 2025.

Looking closely at the chart, it is also possible to see GDP increases during the Korean War (1950-1953) and between the time the US entered the Vietnam War, deploying up to 549,000 soldiers, and the time the US greatly reduced its forces there (1964-1969).

I think much of Europe is now in a situation in which war looks like a solution. Russia may also be in such a situation. Ukraine, with its problems, is also in such a situation.

[11] There may be lessons to be learned from the 2020 Covid restrictions and the ultra-low oil prices that resulted then.

Back in 2019, many people in the financial world were concerned about the economy. In 2019, the US faced significant financial issues, including a budget deficit that increased by $205.4 billion to $984.4 billion. In addition, in September 2019, there was a spike in the interest rates financial institutions charge each other (repo rates) that concerned those who followed financial markets closely.

What took place in 2020 seemed to some of us to be close to miraculous. The strange actions related to Covid greatly brought down the price of oil. Covid also provided an excuse to give money to households. US government debt was able to increase greatly, and, somehow, the world economic system has held together until now. Financial problems were “kicked down the road” a while longer. Without the pressure of financial problems, the economy could work on ways to mitigate the energy problem a while longer.

Economies are self-organizing systems, just as the human body is a self-organizing system. Both are powered by “energy dissipation.” Human bodies tend to heal wounds, like magic. Economists talk about an “invisible hand” being helpful to economies. In situations where the healing of economies does occur, low oil prices can be part of the magic.

[12] What might be ahead?

We are again in a period when the US and world economies are on shaky ground. Debt levels are high, and conflict levels are high.

As I have discussed in this post, I expect the general trend in oil prices will be down, rather than up. The major reason why oil prices are likely to be low is because, with the damage done in the Middle East, the quantity of oil supply available to the world is starting to shrink. As a result of the low oil quantity, the world will produce fewer goods and services. This is close to the definition of recession! (Also, on Figure 1, this is why we expect Wile E. Coyote to fall down, rather than to float up, when his support disappears.)

I expect as oil product shortages hit, local leaders will figure out ways to mitigate the oil bottleneck that the world now seems to be facing. Local leaders will enact rules that make certain that whatever oil is available is used to maintain essential services. It will not be surprising if local leaders keep people at home, using one excuse or another, to keep oil demand in line with the quantity of oil that is available. This is a big part of why oil prices will tend to be low, in a manner similar to 2020.

With low oil prices, I expect that inflation will be low. Pressure to keep raising interest rates will disappear. The economy will not be doing well, but the issue will not be high interest rates preventing new investment.

In my opinion, the world economy needs to reorganize with shorter supply lines to get through the oil “tight spot” that the economy is in. If supply lines could mostly be kept within the areas marked on Figure 7, it seems like a significant amount of transport fuel could be saved.

A world map with highlighted areas in yellow representing parts of North America and East Asia, surrounded by a black outline. — Figure 7. Map showing world divided into two areas of influence. In my opinion, supply lines need to increasingly come from within the same hemisphere. Areas marked in yellow represent my idea of future centers of trade.

The conflict with Iran doesn’t seem to be ending well for the US, but there might be a silver lining. The pain the US is experiencing in Iran will hopefully teach the US to stay out of issues in the Eastern Hemisphere. If a conflict with Iran is to ramp up again in the near future, I expect that it will be a European group that will be getting involved, not the US.

We don’t know quite what is ahead, but the experience in 2020 shows that a strange confluence of events leading to low oil prices can actually be helpful. Let us hope that a similar result will be possible this time.

Posted in Financial Implications, News Related Post, oil shortages | Tagged Self-organizing economy, self-organizing systems | 140 Comments

China and US Trade Talks: A Solution for Oil Shortages?

Posted on May 12, 2026 by Gail Tverberg

The war with Iran is not going well. It is difficult to supply US troops with adequate food and other necessities. With summer arriving soon, the region will soon be an even more inhospitable place for ground troops to fight. An underlying problem is that the world economy was reaching resource limits even before the Iran War began, adding to the difficulties.

The most pressing resource limit is distillate fuel oil–an industry term for what we think of as diesel and jet fuel. This fuel is heavily used in transportation. It is also used extensively in agriculture and industry. Somehow, the system needs to cut back on these fuels for international trade so that more fuel is available for agriculture and industry.

President Trump of the US and President Xi of China will be meeting in Beijing on May 14-15. This meeting would seem to be the perfect time to start reorganizing the world with shorter trade routes, so that the world economy uses less fuel for transportation. China and the US are the two great powers in the world. Keeping trade mostly within the two areas shown in Figure 1 would be a way of using fuel oil more sparingly.

A simplified world map highlighting two regions in yellow: one in North America and one in East Asia. — Figure 1. Map of the world showing how Gail Tverberg expects Presidents Xi and Trump might split most world trade. The vast majority of trade would take place within the two areas shown. Within these groupings, the centers of trade might be the yellow areas shown.

An advantage of such a plan, besides saving on fuel, is that it could stop the Iran War without clearly declaring one side the winner or loser. In this post, I will attempt to explain the situation further.

[1] Based on the ideas of Dr. Mohammed Marandi, I believe that China might be able to mediate a settlement between the US and Iran.

Dr. Marandi was born in the United States of Iranian parents. He currently lives in Iran, where he is a professor at the University of Tehran. In the video, One Country Quietly Won this War, he points out that, often, when two countries battle each other, neither one emerges as the clear winner. Both of them are damaged by the war. The actual winner may be a country that does not seem to be directly involved in the war.

In the video referenced above, Dr. Marandi discusses three historical situations in which a nation not directly involved in a conflict gained stature by being the “adult in the room,” when two other nations battled each other. In this case, Dr. Marandi believes that China could very well be the country that can exert enough pressure on both sides to get them to accept a proposed solution. He says that China has acted behind the scenes to bring about the ceasefire, and that Trump has acknowledged China’s role.

Dr. Marandi suggests the idea that the upcoming meeting of the two presidents might be an opportune moment to make major steps toward a mutually agreed settlement. I believe that the underlying problem is that there isn’t enough energy (particularly oil) to support a world population of over eight billion. Dividing up markets in the way I have suggested would at least somewhat alleviate the shortage. Of course, there may be other terms of a settlement, as well. In addition, not all the terms may be determined precisely at this time.

[2] The world doesn’t have enough diesel and jet fuel to maintain the current level of trade across the Atlantic and Pacific Oceans.

Line graph showing world per capita diesel and jet fuel consumption from 1980 to 2024, indicating a small peak in 2007 and a major drop in 2020 with only partial recovery afterward. — Figure 2. Combined diesel and jet fuel supply, divided by world population, based on data of the *2025 Statistical Review of World Energy,* published by the Energy Institute.

Figure 2 shows that per capita diesel and jet fuel started to drop at the time of the Great Financial Crisis in 2007-2009. Their supply took a larger step down in 2020, and it hasn’t completely recovered. In 2026, the Iran War has taken out more crude oil supply, for an unknown period of time.

Diesel and jet fuel are both very important as transportation fuels. Diesel is also important in agriculture because it provides the power needed for heavy machinery to till fields, even under the most adverse conditions. Diesel provides the power needed for large commercial trucks, many trains, and ships. Earth moving equipment is also typically operated by diesel fuel.

If the amount of trade across the Atlantic and Pacific could be greatly reduced, it would help alleviate the shortage of distillates. Of course, the tourist trade would also need to be greatly reduced. With recent spikes in aviation fuel prices, many flights are being cut. Some airlines, including Spirit Airlines in the US, are going bankrupt. The problem is starting to solve itself, but more changes will be needed.

[3] Looking at population and oil supplies, the Americas seems likely to come out somewhat ahead.

[3a] Comparing the populations of the two areas, the World ex Americas is much larger, and its population is growing faster.

Line graph depicting global population growth from 1980 to 2024, comparing populations in the Americas (blue line) and the world excluding the Americas (orange line). — Figure 3. World population between the Americas and the world excluding the Americas, based on data of the *2025 Statistical Review of World Energy*, published by the Energy Institute.

President Xi (leading one hemisphere) would get the very large and still rapidly growing part of the world population. President Trump would get a smaller and less rapidly growing share of the world population. Between 2021 and 2024, world population grew an average of 0.6% per year in the Americas, and an average of 0.9% per year in the World ex Americas.

[3b] The Americas seem to have an advantage with respect to crude oil production.

Line graph depicting crude oil production per capita from 1980 to projected 2025, showing two lines: one for the Americas (blue) and another for the world excluding the Americas (orange). — Figure 4. Crude oil production per capita, based on data of the US Energy Information Administration.

It makes sense to look at energy amounts on a per-capita basis because the quantity needed depends on the number of people requiring the benefits of transportation, agriculture, and industry. On this basis, crude oil production of the Americas has clearly been outshining that of the World ex Americas. It is higher on a per-capita basis. In addition, the amount available has been increasing in recent years.

Figure 5, below, shows total crude oil production (not per capita).

Line graph showing crude oil production from 1980 to 2025, with two lines: one representing 'Americas' in blue, and another representing 'World ex Americas' in orange. The y-axis measures production in million barrels per day. — Figure 5. Crude oil production of the Americas compared to that of the World ex Americas, based on data of the US Energy Information Administration.

Figure 5 suggests that since 2005, crude oil production for the World ex Americas has hardly increased. In fact, total extraction has decreased since 2019. A person viewing this data might conclude that crude oil production in this area may already be past its peak.

On the other hand, Figure 5 shows that oil production of the Americas has increased by about 65% since 2005. Many people believe that US shale production will soon decline. At the same time, however, increases seem likely in several other countries in the Americas, including Canada, Brazil, Argentina, and Guyana. Thus, while crude oil production for the Americas may decline in the near future, its decline is likely to be gradual.

[3c] Crude oil production by geographical area outside of the Americas shows declining production in all areas.

Line graph showing crude oil production by area, excluding the Americas, from 1980 to 2025. The graph features multiple colored lines representing Europe, Asia Pacific, Africa, Russia+, and the Middle East, with production in million barrels per day. — Figure 6. Crude oil production by geographical area for the World ex Americas, based on data from the US Energy Information Administration. Russia+ refers to Russia plus nearby countries that used to be part of the Soviet Union.

Figure 6 shows that Europe’s crude oil production started its permanent decline in 2001. Asia-Pacific’s production hit a maximum in 2010, and it has been declining since. Africa’s peak oil production took place in 2008, and it has been mostly declining since.

Russia+, which I use to refer to Russia plus nearby countries that used to be part of the Soviet Union, has an unusual production pattern. Its crude oil production started to decline in 1989, two years before the collapse of the Soviet Union in 1991. (This collapse in crude oil production likely contributed to the collapse of the Soviet Union.) Crude oil production for Russia+ rose from 1998 to 2019.

Russia+’s production took a big step down in 2020, and it has not been able to recover since. A person might think that Russia+’s oil production was post peak, even before the 2022 conflict with Ukraine broke out. If an oil exporter doesn’t have enough oil to export, it tends to create financial problems within an economy. Participating in a war can appear to mitigate the country’s problems.

Many people assume that the Middle East has endless inexpensive-to-produce crude oil. I don’t think that this is the case. Crude oil production of the Middle East (Figure 6 above) hit two similar peaks in 2016 and 2018, and it has been lower in years since then. I think that Middle Eastern oil production is likely past peak partly because of depletion issues and partly because most countries in the area require high taxes on oil exports to provide subsidies for their ever-growing populations. This leads OPEC to try to maintain high prices. Lower crude oil production since 2018 is consistent with the hypothesis that oil production for the Middle East is mostly post-peak.

One additional difficulty of the World ex Americas is that it is so heavily populated that it cannot access tight oil that might be available without displacing a large number of residents. Another difficulty is that very old wells, such as those in Saudi Arabia and Iran, are ones that it might not be possible to restart if they are shut in for an extended time.

[4] In terms of mining and manufacturing, the Americas seems to come out behind the World ex Americas.

The World ex Americas has rapidly ramped up mining and manufacturing. Coal has been the preferred industrial fuel, with natural gas consumption also increasing.

Line graph depicting global energy consumption by type (Oil, Coal, Natural Gas, Fossil Fuel Extenders) from 1980 to 2022, measured in Exajoules. — Figure 7. Energy consumption by type for World ex Americas, based on data of the *2025 Statistical Review of World Energy*, based on data of the Energy Institute. Fossil fuel extenders include hydroelectric power, nuclear power, wind power, solar power, biofuels including ethanol, and any other types of add-ons to fossil fuels.

Figure 7 shows that the energy consumption of the World ex Americas started increasing more rapidly after China joined the World Trade Organization in 2001. The consumption of coal and natural gas has especially increased.

Line graph displaying energy consumption by type in the Americas from 1980 to 2022, showing oil, coal, natural gas, and fossil fuel extenders in exajoules. — Figure 8. Energy consumption by type for the Americas, based on data of the *2025 Statistical Review of World Energy*, based on data of the Energy Institute.

The economies of the Americas have tended to shift towards service economies. Emphasis has been placed on fuel efficiency. Homes are now better insulated, light bulbs are more efficient, and engines of vehicles are more efficient. As a result, energy consumption within the Americas has tended to stay flat (Figure 8).

I have used the same scale on Figure 8 as on Figure 7 to emphasize how low energy consumption for the Americas is now, relative to the rest of the world. After US oil prices first rose to a high level in 1973, the US started transferring manufacturing to lower-wage countries. Southeast Asian countries began to be favored after 2001. Moving manufacturing abroad helped hold down US energy consumption and helped make the cost of goods to the consumer cheaper.

The problem today is that moving so much manufacturing elsewhere has made it difficult for the Americas to go back to producing its own goods, including clothing, furniture, and transformers for electrical systems. Supply lines for a particular item, such as a refrigerator, often run through many countries around the world.

[5] The full transition to the configuration shown on Figure 1 could take well over 100 years.

Changes, such as new supply lines and the new placement of major population areas, cannot happen very quickly. But I expect that some of the same underlying principles that guided these decisions in the past will continue to guide them in the future.

For example, infrastructure (roads, bridges, pipelines, and (today) long distance electricity transmission lines) seems to be the most difficult part of an economy to maintain because of the huge amount of energy required. Before the days of fossil fuels, I understand that slave labor was often used to build and maintain infrastructure. Similarly, slave labor was sometimes used to staff the mines needed to support the building of such infrastructure. As we lose fossil fuels, we will need to think about reducing our reliance on infrastructure.

One low-infrastructure approach used in the past was to build cities near bodies of water, so that fewer roads would be needed. Boats could be used to transport goods without building roads or bridges. If fish were available, they could be caught and used for food. In Figure 1, I am imagining that we will head back in this direction, with cities especially along navigable bodies of water and the ocean.

Unless we discover ways to replace fossil fuel energy, I would expect that the system will tend to go down in the reverse order of when it was put up. In general, electricity was last to be added, after coal, oil, and gas from coal. Electrification was first built in cities; then electricity transmission lines were added to provide electricity to rural areas. Above-ground lines tend to be damaged in storms, leading to a need for frequent repairs. Because of this issue, I would expect rural electricity to disappear quite quickly, unless it is generated at the location where it is used.

Natural gas shipped as Liquefied Natural Gas (LNG) was added very late. Its cost tends to be much higher than that of pipeline gas. I expect it to disappear quite quickly.

A full transition to the two trading zones shown on Figure 1 would require a huge number of changes in supply lines. A 2025 chart by Visual Capitalist shows how much control China has over critical minerals. It states, “China controls key materials such as graphite, rare earths, and gallium–essential for green technologies and defense industries.” While the US has started working on its own production of minerals, it will also need to develop the processing capability for these minerals. Putting all of this in place will likely take many decades. This is a significant factor in the 100-year estimate.

[6] If energy supplies are limited, I would expect population centers closest to fuel sources to be especially favored.

Writers today talk about possibly running short of diesel and jet fuel in a few weeks or months. Clearly, if a population center is at a location where there are both oil wells and refineries for the oil from those wells, the area has a better chance of having fuel than an island in the middle of the Pacific with nothing to sell other than tourism. Thus, Houston, Texas, will likely have fuel, even when models suggest there will be shortfalls in many places.

Often writers concerned about resource shortages talk about the core and the periphery. The core needs to be near whatever source of energy is available that can be used to help grow crops and transport goods. At this point, oil is the fuel that is closest to filling this need. Electricity is a nice-to-have, and it can provide services like refrigeration for food. But it is not good for paving roads or building bridges. So, it can only add to the mix, not substitute completely for oil. Slave labor is the closest substitute for oil that the world has discovered. We would rather not go back to using such an approach.

[7] I am concerned that a major downward economic step will be necessary in the upcoming months and years, but I am hopeful that the meeting between President Trump and President Xi on May 14-15 can help smooth the way.

We are at a point at which it is clear that the current organization of the global economy is not working. I hope that the meeting between Trump and Xi will help put an end to fighting in the Middle East. I also hope it will help pave the way for a new path forward.

I expect that the path ahead will be a difficult one, both for the people in the Americas and the people in the World ex Americas. While the US has considerable energy supplies, it lacks manufacturing capability for many everyday goods. The US is also lacking in many critical minerals, especially those used in making high-tech products. With its high wages, it will need extremely high prices, unless processes can be made very efficient.

The World ex Americas may have an even more difficult step down. Its oil supply was already more stretched before the Iran War. Its overpopulation problem seems to be worse than that of the Americas. The World ex Americas is more directly affected by the damage done in the Middle East and the resulting loss of oil supply. And there seem to be many groups looking for war, even if the US leaves.

Let’s all keep our fingers crossed that the upcoming meeting will have a beneficial effect, both in the short term and in working toward a longer-term solution.

Posted in Energy policy, News Related Post, Oil and Its Future, oil shortages | Tagged distillate fuel shortage, jet fuel shortage, peak oil, population issues | 3,235 Comments

Losing the Iran War May Be the Best Outcome for the World

Posted on April 2, 2026 by Gail Tverberg

As I will explain, the outcome that looks like losing may actually be the best path forward for the world’s remaining economies.

The fighting today is with respect to which parts of the world will get which energy resources, and at what prices. Even before the current conflict, there was a shortage of jet fuel and diesel. The only reasonable outcome I can think of is that the US will only be able to tap its own energy resources, plus those of its nearby neighbors (Figure 1). Consequently, the economy will gradually reorganize in ways that use fuels more sparingly.

World map highlighting regions impacted by fuel shortages, affecting international trade. — Figure 1. A chart I made when trying to explain that it is really the heavy oil portion of oil, which disproportionately makes diesel and jet fuel, that is especially constrained. Reducing travel across the Atlantic and Pacific Oceans would leave more heavy oil for other purposes, such as growing food.

The outcome outlined in Figure 1 implies that Donald Trump and the US-Israel coalition will lose the war against Iran. It appears that the physics of the situation (or perhaps the Higher Power behind the physics of the situation) has chosen the flawed personality of Donald Trump to accomplish the required result. This is a situation where what seems to be the US losing in its conflict against Iran is actually winning for the overall world economy. If oil can be used more sparingly in the future by servicing people closer to where end products are made, the available energy resources will provide greater benefit to society as a whole.

In the remainder of this article, I will try to explain the situation more fully.

[1] Background

In physics terms, an economy is a dissipative structure. In order to stay away from a dead state (collapse), it needs to “dissipate” energy of the right kinds. A human is also a dissipative structure. We dissipate food to stay away from a dead state.

From a physics point of view, fossil fuels are as essential to economies as food is to humans. Without fossil fuels, economies tend to collapse and die. With an adequate supply of easily extractable and transportable fossil fuels, economies are able to grow. However, when these fuels become less available due to the exhaustion of nearby resources, or for other reasons, economies are forced to shrink. Rising population can also be a factor because every person in the world needs food and at least minimal transportation. The war is about future standards of living in countries around the world.

An underlying problem is that the world now has too many people for the available resources, such as fresh water. One chart showing data through the end of 2023 indicates that the Middle East is home to 4,863 desalination plants, or about 42% of the world’s total. This region is acutely stressed for fresh water. The Middle East cannot grow much of its own food; it must depend on imports, which are grown and transported using oil.

Previous analyses (here and here) have shown that diesel and jet fuel supplies have been in increasingly short supply since long before the Iran War.

Line graph showing global per capita diesel supply as a percentage of 1980 levels from 1980 to 2024, indicating a decline since 2008. — Figure 2. World per capita diesel supply, based on data of the *2025 Statistical Review of World Energy*, published by the Energy Institute.

Critical minerals, used in electrification, are also in very short supply. In a finite world, the easy-to-extract minerals are extracted first, leaving the high-cost-to extract minerals for the future.

In today’s fossil fuel economy, oil is the largest component. Oil is usually the highest-priced of the fossil fuels because it is energy-dense and easy to transport and store. If oil supply fails, an economy is likely to collapse. Coal and natural gas are the other fossil fuels. Liquefied natural gas (LNG) is natural gas that is super-chilled and shipped long-distance by boat. Similarly to oil, its price is under pressure today.

[2] The world’s fossil fuel economy already seems to be at a turning point in its economic cycle.

It is well known that economies exhibit cyclical behavior. Researchers Peter Turchin and Sergey Nefedov analyzed eight economies that collapsed and published their findings in their book Secular Cycles. They found that populations that discovered new resources were able to grow for a period of time until they came close to the carrying capacity of the resources available. After approaching the carrying capacity, economies reached a period of stagflation, characterized by slower growth, inflation, and spiking prices as shown on Figure 3.

Graph illustrating the shape of a typical secular cycle, showing phases of growth, stagflation, crisis, and intercycle over time in relation to population. — Figure 3. Chart by author based on information provided in Turchin and Nefedov’s book, *Secular Cycles*

At this point, the fossil fuel system has been growing for over 200 years. It has undergone stagflation since the early 1970s. It is now ready to begin the downswing of the Crisis Years.

Now, the Iran War seems to mark the beginning of a fairly long Crisis Period. The Stagflation Period was expected to last 50 to 60 years. The year 2026 is 56 years after the time US crude oil production stopped growing, so the timing is roughly in line with expectations. However, we don’t know whether the Crisis Period will really last between 20 and 50 years, since the situation is now quite different compared to cycles before fossil fuels were added to the economy. But it does look like the world economy is headed for reorganization based on the limited fuel supply.

**[3] In order for an economy to “work,” oil prices need to be both low enough for consumers, buying end products such as food made possible by the use of oil, and high enough for oil producers.**

This issue is not one most people think much about. There are really two different oil price levels that are important:

(a) The price level affordable by consumers. If consumers cannot afford food or basic transportation, this quickly becomes a problem that leads to unhappiness with elected officials. This is the reason why elected officials often try to hold down oil prices.

(b) The price that oil producers require in order to make an adequate profit and allow investment in new wells to offset depletion in existing wells. In the case of oil exporters, oil prices may need to be very high to permit high taxes on oil exports to support food subsidies and other government programs.

I believe that a major problem we have reached today is that countries that are primarily oil exporters, such as Russia and countries in the Middle East, need far higher oil prices than consumers are able to pay. Even if the wars in Ukraine and Iran stopped tomorrow, the world would still have this underlying issue.

[4] Since 2014, oil prices have been too low for countries that use taxes on oil exports as a major source of tax revenue.

Graph showing the average annual Brent oil price from 1945 to 2025 in US dollars, highlighting trends and key price points for consumers and producers. — Figure 4. Oil prices in 2025 US$, with ovals marking three different oil price periods. Oil prices are based on oil data from the *2025 Statistical Review of World Energy,* published by the Energy Institute, adjusted by the US CPI Urban increase to 2025 levels. The 2025 average Brent oil price is from EIA data.

Figure 4 shows average world oil prices on an inflation-adjusted basis, to 2025 price levels. As such, prices for earlier dates appear much higher on the graph than past observers would have seen them.

The low oil prices from 1948 until early 1973 were good for economies around the world, including the US. In the early days of oil extraction, oil was easy to extract and close to where it was to be used. The cost of extraction and transport was low. Consumers started seeing many more products become available. Many families in the US could afford a car for the first time. Also, the US was able to support the recovery of European economies from the impact of World War II at a cost that was not excessive.

In recent years, costs have risen. This is especially the case for the price needed by oil exporters. Part of the problem is that the size of the population requiring subsidy keeps growing, while oil production has been close to flat.

A line graph showing Middle East crude oil production alongside population growth from 2000 to 2024. Crude oil production remains flat, while the population steadily increases. — Figure 5. Crude oil production of the Middle East and population based on data from the *2025 Statistical Review of World Energy*, published by the Energy Institute.

A second part of the problem is that economies of oil exporters often have few other sources of taxable revenue. Oil exporters are trying to change this by adding downstream manufacturing that uses the oil and gas they produce. A third part of the problem is that, as population grows, the higher population tends to use more of the available oil supply, leaving less for export.

Figure 6 shows that, in the 2011-2013 period, oil prices seemed to be high enough for most OPEC members (except Iran). Fiscal break-even prices indicate how high oil prices need to be, including the amount of tax revenue needed to balance budgets.

A graph showing OPEC countries' fiscal break-even prices in dollars per barrel (S/bbl) versus cumulative petroleum production in thousand barrels per day (mbd), highlighting Saudi Arabia's position at around $100/bbl against a backdrop of other OPEC nations. — Figure 6. OPEC Fiscal Breakeven prices, published by APICORP in approximately 2013.

The notation in yellow on Figure 6 shows that the expected fiscal breakeven break-even for the period under analysis for all OPEC members combined was $105. EIA data shows that the average Brent oil prices during this period were $111 in the year 2011, $112 in the year 2012, and $109 in 2013. Thus, prices were high enough for most producers. Iran was an outlier on the high side, with a range for the 2013-2014 period of $110 to $172. (A more recent forecast for Iran shows a 2025 fiscal breakeven price of $124, which remains far above the pre-Iran war oil price.)

Figure 4 shows that oil prices began to fall in 2014. At these lower levels, it became increasingly difficult for oil exporters to obtain enough tax revenue to significantly help their local populations. They started needing to use more debt to fund their local economies. As a result, they gradually became increasingly unhappy. Figure 4 shows that the average price 2025 for Brent oil was only $65.

To make matters worse for oil exporting countries requiring high prices, oil price forecasts by the EIA and IEA for the year 2026 were even lower because of an expected oversupply of oil. Countries with growing oil production included Argentina, Brazil, China, and Guyana. In addition, some counties on the coast of Africa are hoping to add oil production. Unless world demand is growing rapidly, more oil supply tends to lead to lower prices and a worse situation for oil exporters trying to balance their budgets with taxes on exported oil.

[5] Without the war, LNG prices would also have been too low for LNG exporters.

LNG is a “modern” way of shipping natural gas. Only about 13% of natural gas is transported as LNG. It tends to be an expensive method of transport. Recent reports indicate that a huge amount of future LNG supply is planned for the next few years.

Bar graph illustrating the growth of LNG supply from various countries including the US, Australia, Qatar, Russia, Canada, and others from 2016 to 2035, highlighting a significant increase in supply over the years. — Figure 7. From *“Will QatarEnergy’s LNG Fiasco Derail Goldman’s Prewar View Of A Mega LNG Wave.”* Source.

Adding a huge amount of LNG would probably cause prices to drop significantly. This would be great from the point of view of consumers, but it would likely leave prices too low for producers. As I see the situation, Middle Eastern producers are likely to need prices in the $15 to $20 range per million metric tons of LNG, while India is not willing to pay more than $10 per unit, and those wanting to replace coal are unwilling to pay more than $5 per unit. Thus, without the war, LNG would have had a similar problem to that of oil, with prices far too low for exporters.

[6] From Iran’s point of view, I see the war as similar to a suicide, when a farmer can no longer support his family.

With Iran’s fiscal breakeven price at $124 per barrel and the pre-war Brent price at only $65, Iran was already in an impossible position. In fact, Iran could see that all of the Middle East infrastructure would be close to worthless, at expected 2026 oil and LNG prices. So why not take it down as well?

If nothing else, a war might help raise prices, at least a bit. Notice that on Figure 4, oil prices bounced up a little from their very low level in 2022, the year when the Ukraine conflict started.

[7] Losing any significant share of energy supply is likely to significantly reduce world GDP.

If the energy supply were to be lost, the world would be dealing with the losing something equivalent to its food supply. If the world economy loses even 10% of its oil and LNG, it is not difficult to imagine world GDP falling by 10%. At this point, we don’t know precisely how much energy supply, of which kind, will be lost, or for how long. The amount lost could be far higher than 10%. Also, the outage could last for years.

There are many issues involved. Supply lines are breaking down forcing businesses to find closer sources for both energy products and products made using cheap local energy products, such as fertilizer and aluminum. The war, as it is taking place today, is leading to major damage to energy-related structures in the Middle East. Destroyed LNG structures are estimated to take at least five years to replace. Damage elsewhere is also immense. Rebuilding the oil infrastructure will also likely take at least five years.

[8] The US understands the importance of Middle Eastern oil and gas. It uses its strong relationship with Israel to further its military presence in the Middle East.

Israel is a very high-level ally. In fact, a 2025 US Department of State Fact Sheet says that the US is committed to helping Israel in the case of an attack:

Steadfast support for Israel’s security has been a cornerstone of American foreign policy for every U.S. Administration since the presidency of Harry S. Truman. . . Israel is the leading global recipient of Title 22 U.S. security assistance under the Foreign Military Financing (FMF) program. . .Israel has been designated as a U.S. Major Non-NATO Ally under U.S. law. This status provides foreign partners with certain benefits in the areas of defense trade and security cooperation and is a powerful symbol of their close relationship with the United States. Consistent with statutory requirements, it is the policy of the United States to help Israel preserve its QME, or its ability to counter and defeat any credible conventional military threat from any individual state or possible coalition of states or from non-state actors, while sustaining minimal damages and casualties.

However, if we look to see where US military bases are located, they are not in Israel. Instead, a map shows that the “persistent” US military bases are all located around the Persian Gulf (Figure 8).

Map showing U.S. overseas military bases in the Central Command Area of Responsibility (CENTCOM AOR) in the Middle East, including locations in Iraq, Kuwait, Bahrain, Qatar, Saudi Arabia, and the United Arab Emirates. — Figure 8. Figure shown by Congress.Gov of US bases in the Middle East, as of July 10, 2024. Source.

These bases were clearly intended to protect oil transiting through the Persian Gulf. At this point, all of the persistent bases have been severely damaged by missiles from Iran.

The major interest of the US has been the availability of oil and natural gas from the Middle East. No one ever considered the idea that low prices might be the force that would bring down Middle Eastern oil and natural gas exports.

Friendship with Israel provides the US a convenient close by ally. It also pleases both Jewish Americans who support Israel and those evangelical Christians who hold a religious view that Israel is needed for the second coming of Christ. Some of the latter may even believe that a war in the Middle East could perhaps hasten this event.

[9] Trump realizes that winning the war against Iran is absolutely essential if the US is to retain global hegemony.

The US has been the holder of the world’s reserve currency since immediately after World War II. It was chosen for this role because it was the most trusted and dominant country in the world. International trade took place almost exclusively in US dollars, creating a high demand for US government debt. This allowed the US to import more goods and services than it exported, year after year. This advantage tended to raise the standard of living of US residents.

At one time, Saudi Arabia insisted that all oil purchases be made in US dollars. This requirement has recently expired, but, as a practical matter, the majority of purchases have continued to be through trades in US dollars.

One of the main ways that the US has maintained its hegemony is by building military bases around the world. With these bases, the US can claim to protect countries against aggressors. However, recent events have shown that Iran is able to take down the radar systems at these bases. Without radar, the bases are virtually useless. If the US is to maintain the illusion that it is truly at the top of the pecking order with its sophisticated weaponry, it must show that, together with Israel, it can prevail against Iran.

A disadvantage of the role of being the chief hegemon is ever-rising US government debt and the need to pay interest on that debt. This growing debt and the interest on the debt has become an increasing burden.

If the US should lose its hegemony role, the advantage the US has had over other countries in trade is likely to disappear. Repaying debt with interest is likely to become an even worse problem. If this should happen, Trump will no longer be able to think about making America great again.

[10] Conclusion

The world is now facing a problem that most people never considered possible: Oil and LNG prices can fall so low that production becomes unprofitable for major oil and LNG exporters. Until now, the trend among world leaders, including President Trump, has been to try to hold prices down for consumers, so that food and fuel for vehicles would remain affordable. However, this has created a problem in that prices have become too low for countries whose primary industry is being an oil exporter.

At this point, the world economy needs to make a major transition in order to deal with the inadequate level of fuels available for long-distance transportation. These same fuels are heavily used for farming and for many for commercial endeavors, such as building homes and roads. It is therefore necessary to find ways to use these fuels more sparingly. One way to achieve this is by reducing the length of most supply lines, as shown on Figure 1. Shorter supply lines will also be needed elsewhere in the world.

It is ironic that the world economy cannot make a change such as this without a war to focus our attention in this direction. Other changes will also be needed. Governments will probably have to become smaller and provide fewer services. Vacation travel will become the exception rather than the rule. “Working from home” will become the norm, whenever possible. I expect that the world’s population will need to fall, albeit in a fairly subtle way. I expect this will mostly be the result of shorter life expectancies.

We are fortunate that economies are self-organizing. If resources are available, even after a major schism such as the loss of the war against Iran, the self-organizing nature of the economic system will try to knit together pieces that can productively provide goods and services. This cannot happen instantly, but this feature means that there are likely to be some jobs and some goods and services available. Past cycles of the type illustrated in Figure 3 have eventually led to new beginnings.

If the US and Israel lose the current war against Iran, I expect President Trump to be blamed for this loss. However, I believe that this outcome would be best for the world as a whole.

Posted in Energy policy, Financial Implications, News Related Post | Tagged diesel, economic cycles, oil prices | 3,760 Comments

A New Explanation for Tariffs and Bombings

Posted on March 2, 2026 by Gail Tverberg

The underlying problems are energy-related

A few years ago, I analyzed the growth of world energy consumption, breaking it down into (a) the growth in energy consumption needed to support the growth in world population, and (b) the growth in energy consumption available to support higher standards of living. This analysis covered the period 1820 to 2020. I found that periods of low growth tended to coincide with wars, depressions, and collapses. This is not surprising in a world economy governed by the laws of physics. Every part of the economy requires adequate energy of appropriate kinds.

Line graph depicting world energy consumption growth, population growth, and standard of living increase from 1830 to 2020. The x-axis represents decades, while the y-axis shows average annual percentage. The red line indicates the standard of living, and the blue line represents population growth, with notable events marked along the timeline. — Figure 1. Chart from 2021, showing average annual growth in world energy consumption for 10-year periods. These increases were divided into the portion needed to cover the population increase, and the remaining amount available to support an increase in living standards.

In this post, I analyze data for 5-year periods, ending in 2024, to obtain an updated view of recent energy consumption and population trends. My conclusion is that total energy consumption growth in recent years has not been sufficient to forestall major problems. A more detailed analysis reveals that growth in certain vital resources (the diesel+jet fuel part of oil supply, and critical minerals related to electricity production and usage) is particularly problematic.

These findings indicate that the economy is already beginning to hit energy limits. Because of energy-related shortages that are already being encountered, national economies are beginning to act like the players in a game of musical chairs, with one too few chairs. Leaders have taken to building up armies, cutting off exports of critical minerals, imposing tariffs, and bombing other countries, even though these actions might not make sense to peace-loving citizens.

[1] Figure 2 is a stacked bar chart showing similar indications to Figure 1.

Bar graph comparing world energy consumption growth (red) and population growth (blue) from 1830 to 2020, showing average annual increase over each decade. — Figure 2. Average worldwide growth in energy consumption, divided into two segments: (a) the portion needed to provide for existing population at the current standard of living, and (2) the portion available to support growth in worldwide living standards. This chart displays the same data as Figure 1, differently.

The total of the red and blue segments is the average annual increase in world energy consumption over a particular 10-year period. The blue amounts (usually at the bottom) are those necessary to provide services at the same level as in the past, given the population increase. The red amounts (usually at the top) are determined by subtraction. Large red caps are good, while red caps below the zero line are very bad. They indicate that the per-capita energy supply is declining.

[2] The largest increases in Figure 2 correspond to favorable economic times.

The vertical text in Figure 1 provides examples of how low points in energy consumption have proven to be very bad. In this section, I show that the opposite is also true: High points tend to correspond to very good times economically.

One peak in Figures 1 and 2 coincides with the 1901 to 1910 period. This period corresponds to early electrification and advances in the mechanization of agriculture. It was before 1913 when the United Kingdom hit peak coal, limiting the amount of coal that could be profitably extracted. Germany hit peak hard coal shortly before World War II. After peak coal was reached, less coal was available per capita. Leaders felt the pressure of “not enough coal to go around” and opted for war.

In Figures 1 and 2, rapid energy growth occurred after World War II, during the 1950s, 1960s and 1970s. The lower peak in the 2001-2010 period coincided with much greater use of coal after China was added to the World Trade Organization (WTO) in late 2001. High-wage countries started transferring their industry to China because costs would be lower in two ways: Wage costs were lower, and coal was an inexpensive fuel, reducing energy costs. Furthermore, by transferring industry, including manufacturing and mining, to China, high-wage countries could also lower their own CO2 emissions, as required by the 1997 Kyoto Protocol.

We would expect the patterns we are seeing in Figures 1 and 2 if the world economy is governed by the laws of physics. The availability of plenty of inexpensive energy, of kinds that match built infrastructure, is what is needed to allow the world economy to grow.

[3] Figure 3 shows more recent world energy data organized by 5-year periods. It shows how small the “red caps” of the types leading to favorable economic outcomes have been in the last decade.

Bar graph showing 5-year average growth in total energy from 1974 to 2024, with blue bars representing population growth and orange bars indicating per capita energy growth. The Y-axis ranges from -2% to 5%, highlighting fluctuations in energy growth over the decades. — Figure 3. Chart showing similar information to that in Figure 2, calculated for 5-year periods, instead of 10-year periods. Underlying data is from the *2025 Statistical Review of World Energy*, published by the Energy Institute.

The latest two 5-year periods comprise the years 2015 to 2024. The short red caps on these two 5-year periods mean that the economy is already being squeezed in the direction of not-enough-to go-around.

[4] Viewed on this same basis, diesel and jet fuel supplies are being squeezed even more than the overall supply of energy products.

Diesel and jet fuel are somewhat similar in composition. They are grouped together in some energy reports as “middle distillates.” They are relatively heavy oil products that come out of oil refineries. If there is a shortage of one, there likely is a shortage of the other as well.

Bar graph showing 5-year average growth in diesel and jet fuel from 1974 to 2024, comparing population growth and per capita growth. — Figure 4. Chart showing similar information to Figures 2 and 3, calculated for 5-year periods, with respect to “middle distillates,” a category that includes diesel and jet fuel. The underlying data is from the *2025 Statistical Review of World Energy*, published by the Energy Institute.

Diesel and jet fuel are of concern because, since 2015, there has been an actual shrinkage in the amount of these fuels available relative to population. In fact, every five-year period since the 2000 to 2004 period has shown less growth in diesel and jet fuel than in the overall world energy supply. (Compare Figures 3 and 4.)

The low growth of diesel+jet fuel is particularly concerning because these fuels are essential for international transportation. With too little of these oil types, trade across the Atlantic and Pacific needs to shrink back. The physics of the situation makes tariffs look like an attractive solution for reducing trade.

World map highlighting the regions affected by low diesel and jet fuel supply, emphasizing the Atlantic and Pacific trading routes. — Figure 5. Chart made by the author, pointing out the need for shorter trade routes.

Another concern is that diesel is essential for food production and transportation. Even if some other types of energy are available in plentiful supply, we cannot get along without food. While wind and solar are popular energy types today, they are not very useful for either international transport or for operating modern agricultural equipment.

[5] The underlying problem is that populations tend to outgrow their resource bases, including energy supplies.

The issue of the world not being able to support endlessly rising human population is an issue that no politician, auto maker, or economist wants to mention. The standard work-around is to show energy supplies without using an adjustment to a per-capita basis. This tends to make the energy situation look much better than it really is. Figure 6 is an example of such a chart.

Line graph comparing world energy sources from 1965 to 2022, showing fossil fuels alongside biofuels, nuclear, hydroelectric, and renewable energy (wind and solar). — Figure 6. World energy divided between fossil fuels and other types, based on data from the *2025 Statistical Review of World Energy*, published by the Energy Institute.

Figure 6 emphasizes how modest the recent add-ons to the fossil fuel supply really are. These add-ons are made possible by fossil fuels; they would tend to disappear if fossil fuels were to disappear. Nuclear, which is the largest of the add-ons, requires both uranium and fossil fuels. The category “Wind+Solar” is the tiny green stripe at the top of Figure 6. In 2024, Wind+Solar amounted to 2.8% of world energy supply.

[6] It is easy to make electricity look like a growth area that can continue its pattern forever.

Figure 7 is a world electricity chart that, like Figure 6, is not on a per-capita basis.

A chart illustrating the world electricity supply by fuel type from 1985 to projected values in 2024, showing trends in fossil fuels, nuclear, hydroelectric, other renewables, and wind plus solar energy, measured in petawatt hours. — Figure 7. World electricity divided between fossil fuels and other types, based on data from the *2025 Statistical Review of World Energy*, published by the Energy Institute.

There are a few details that are easy to miss:

(a) Current electricity production is quite small compared to the total energy supply. As counted by the Energy Institute, electricity amounts to only about 20% of total energy, varying by year and by part of the world. It is already incorporated in Figure 6.

(b) Almost all the non-fossil fuel part of the energy supply (“Add-Ons”) is electricity. In Figure 6, the only type of non-fossil energy shown that is not electricity is biofuels. These are mostly ethanol and biodiesel.

(c) Another detail that is easy to miss is the fact that the growth in the world’s electricity supply, as shown in Figure 7, has been almost exclusively outside the Advanced Economies–that is, members of the Organization for Economic Co-operation and Development (OECD). The Advanced Economies group includes the US, most of Europe, Japan, Australia, and several other countries.

Line graph comparing electricity generation in Advanced Economies versus Other Economies from 1985 to 2024, showing trends in petawatt hours, with annotations noting key events. — Figure 8. Electricity generation divided between Advanced Economies and Other Economies, based on data from the *2025 Statistical Review of World Energy*, published by the Energy Institute. The amounts are **not** per capita.

Figure 8 shows the growth in electricity generation separately for the Advanced Economies and the Other Economies. The chart shows that generation of electricity by the Advanced Economies grew until 2007 but flattened after that date. Electricity generation by the Other Economies has grown the entire time since 1985. The rate of electricity production growth of Other Economies became noticeably more rapid after China joined the WTO in 2001.

Also, population growth since 1985 has disproportionately taken place in Other Economies, as contrasted with Advanced Economies.

A bar graph showing the world population growth from 1985 to 2024, with two segments: 'Advanced Economies' in dark blue and 'Other Economies' in orange, indicating a significant increase in populations, particularly in 'Other Economies'. — Figure 9. Population of Advanced and Other Economies, based on the population assumptions underlying the per capita calculations shown in the *2025 Statistical Review of World Energy*, published by the Energy Institute.

[7] In the Advanced Economies, electricity production has recently been falling on a per capita basis, making a shift to greater electrification seem difficult.

A major issue is that the Advanced Economies are already seeing their electricity supplies per capita declining as shown on Figure 10 below. This is true for all five of the selected economies. Some of the lower consumption is due to efficiency improvements, but some is the result of the offshoring of jobs and industries to low-wage countries.

Line graph depicting electricity production per capita in selected advanced economies from 1985 to 2024, showing trends for the US, Australia, Japan, EU, and UK, measured in kWh per person per 1000. — Figure 10. Per capita electricity production in five selected Advanced Economies, based on data from the *2025 Statistical Review of World Energy*, published by the Energy Institute.

In comparison, electricity production per capita of other economies, with typically lower wages than Advanced Economies and often accompanied by more rapid population growth, has tended to rise, as shown on Figure 11.

Line graph showing electricity production per capita (kWh per person/1000) from 1985 to 2024 for Saudi Arabia, Russia, China, and India. — Figure 11. Per capita electricity production in four selected economies, not included in Advanced Economies, based on data from the *2025 Statistical Review of World Energy*, published by the Energy Institute.

The four “Other Economies” are less similar to each other than the five Advanced Economies. But what is striking is that they all have shown growth in per-capita electricity production since 1999. In 2024, Saudi Arabia’s electricity production had risen to about the per-capita level of the US’s electricity production. By 2024, China’s per-capita electricity production had surpassed that of both the EU and the UK. Russia was part of the Soviet Union before the latter collapsed in 1991. Once Russia’s economy had started recovering from the collapse, about 1999, its per-capita electricity production also began to rise.

[8] Other issues are also making a continued shift to electrification appear difficult, particularly for the Advanced Economies.

Trying to work around using fossil fuels leads to the need for more specialized minerals to produce high tech electrical goods and electricity transmission. The problem faced by Advanced Economies is that they produce practically none of these minerals; they must import them. The US has a long list of minerals it considers critical.

2025 USGS list of critical minerals featuring 60 minerals including 10 new critical minerals and 15 rare earth elements. — Figure 12. Chart of 60 Critical Minerals. Source: https://www.usgs.gov/programs/mineral-resources-program/science/about-2025-list-critical-minerals

Some of these minerals aren’t rare in the earth’s crust. Part of the problem is the lack of industrial capacity in Advanced Economies today, as industry has been moved overseas to reduce costs and local CO2 emissions. For example, the US used to be a major producer of aluminum, but this production has dwindled; other countries, including China, can produce aluminum at lower cost.

Another issue is that China produces the majority of quite a few of these minerals. The US, and probably the other Advanced Economies, had planned to buy what they needed on the world market. Now, production is not keeping up with the amount the world could easily use. In 2025, China announced export restrictions on some minerals, including gallium, germanium and antimony. It has become clear that if Advanced Economies want to have adequate supplies of high-demand minerals (including silver, copper, platinum, rare earth minerals, and uranium, among others), they need to start producing them themselves.

Diesel is used in extracting many of these minerals. If diesel is in short supply, that adds another layer of problems. All these issues may lie behind President Trump’s interest in Greenland.

[9] We don’t hear about these issues partly because academic researchers live in ivory towers, and partly because politicians don’t dare explain the issues to voters.

Part of the problem is that economists don’t understand how tightly the various parts of the world economy are interconnected through the laws of physics. Economists tend to believe that if there is a shortage, prices will rise, and these higher prices will solve nearly all problems. This is not necessarily the case. Buyers cannot purchase more than they can afford. Prices may spike temporarily and then fall back. Production of fossil fuels or minerals may end because prices do not rise high enough, for long enough, for producers to depend upon the higher prices for the long term.

In the case of a shortage, most people assume that the only change the economy will make is in prices. However, the economy is tightly interconnected. It can move production to a different part of the world, where wages and energy costs are lower. An indirect result, in the country losing jobs, may be more wage and wealth disparity. The US seems to be experiencing this issue now, with fewer young people being able to find a job that pays well.

Needless to say, politicians aren’t willing to admit, “We have difficulties for which we can see no solution.” Even leaders of universities are reluctant to suggest that there might be major problems ahead. They don’t want to frighten students or their parents. University officials want all problems to be ones their students can work on, with the hope of solving them in the next few years.

[10] What is happening now is similar to the outcome of a game of musical chairs, when there is one fewer chair than the number of players.

A circular arrangement of seven red wooden chairs with shadows cast on the ground. — Figure 13. Chairs arranged for Musical Chairs Source: Fund Raising Auctioneer

In the game of musical chairs, players walk around a group of chairs until the music stops. At the end of each round, one chair is removed, leaving one fewer chair than the number of players. In the next round, the remaining players all scramble for the chairs available, which often leads to small fights over who gets a chair. This not-enough-to-go-around problem explains the poor relations we see today among countries and political parties. It is also the underlying reason for the interest in imposing tariffs and in bombing other countries.

Financial markets tend to perform well during periods of economic growth. However, if certain kinds of essential resources are in short supply, this will tend to hold back growth. Debt defaults and falling stock markets could result. For these reasons, problems in financial markets may be ahead.

Major governmental changes may be ahead. Representative governments require more energy than simpler types of organizations, such as dictatorships. Furthermore, citizens do not like disorder; they may want to overthrow leaders who seem to allow too much disorder. They may vote them out of office or even try to assassinate them. The problem of resource inadequacy is structural, however. Getting rid of a particular leader doesn’t necessarily help the situation.

Everywhere in the world, at least part of today’s problem is that there are not enough jobs available that pay well. Economists have told us to expect high prices if there are shortages. In a way, not having enough jobs that pay well is the opposite problem. But from a physics standpoint, the result is the same. Only a few people can afford many of the goods that are available. The economists’ misinterpretation of what is going wrong further confuses people’s understanding of our current situation.

Mainstream media needs to cater to advertisers. Because of this issue, we cannot expect them to tell us what is happening. That task seems to fall to bloggers, like me. I try to write an article approximately every month. I hope that the graphs and other figures I have presented in this article will help readers understand why we are currently seeing more types of disruptions, such as tariffs and bombings.

Posted in Financial Implications | Tagged critical minerals, oil prices, per capita energy consumption | 3,475 Comments

Understanding Deglobalization: The Role of Diesel and Jet Fuel

Posted on February 2, 2026 by Gail Tverberg

We are starting to see the beginnings of deglobalization: Countries are increasingly at odds with each other. There is wider disparity among political parties. Trump is making what look to many people like unreasonable demands, both within the US and around the world.

I believe that there is an underlying problem that most people are missing. A worldwide shortage of diesel and jet fuel is forcing international trade to begin moving into a new downward phase, relative to the recent share of GDP shown on Figure 1.

Line graph showing trade as a share of GDP from 1960 to 2024 for the world, India, China, and the United States, expressed as a percentage. — Figure 1. Trade as a share of GDP, 1960 to 2024, in a chart prepared by OurWorldinData.org.

While international trade grew as a percentage of GDP between the 1960s and 2008, it has been basically flat since then. Now the shortages of diesel and jet fuel are forcing the international trade percentage to start falling to a lower level.

In this post, I will try to explain the situation further. One conclusion: Conflict results from the need to reorganize the world economy in a way that uses less long-distance international trade.

[1] Background: The world economy is a dissipative structure, operating under the laws of physics.

The economy behaves differently than most researchers assume because economies are dissipative structures, operating under the laws of physics. Most researchers model tiny parts of economies, and because their views are so narrow, they reach misleading or wrong conclusions.

Most structures that we see, such as books or houses, are, in a sense, dead. Dissipative structures, however, are different in that they can temporarily grow. In order to stay away from being in a dead state, they need to “dissipate” energy of the proper kinds, in adequate amounts. Examples of dissipative structures include plants and animals of all kinds, ecosystems, and hurricanes.

The human body is a dissipative structure that requires food to stay away from a dead state. Hurricanes are dissipative structures that dissipate the heat of a warm body of water.

If an ecosystem doesn’t get enough energy of the right kinds, it will adapt to accommodate the actual mix of fuels and other resources available. If an ecosystem doesn’t get enough sunlight, or enough warm temperatures, or enough water, it will gradually shift toward a different mix of plants and animals that can operate within the mix of resources available. This is similar to what happens within the human body. If a human doesn’t get enough food, their body will shrink or become thinner.

I believe that without adequate diesel and jet fuel, our economy will make a transition analogous to a human going on a diet, or analogous to an ecosystem changing when a different mix of resources is available.

Academic researchers around the world have misunderstood how the process works because they tend to work in ivory towers. They create models based on the narrow view of the economy that their academic area considers appropriate. Once they have developed a narrow model, they cling to it, even though recent insights from physics suggest that a very different model is more appropriate.

[2] Researchers in academic settings make many unwarranted simplifications in their models.

Researchers like to assume that all energy is alike. Substitution is assumed to be relatively easy and quick. Models tend to indicate that if the supply of energy is inadequate, prices will rise. With these higher prices, the economic system will keep problems away practically indefinitely.

The real world doesn’t work this way. When we eat food, we cannot simply substitute kale for all our other food consumption and expect to thrive, even though models would seem to suggest that kale is good for us. Within ecosystems, it is the mix of resources and predators that matters. If the top-level predator is killed off, the system will change. The world economy will face similar changes if today’s international transport system runs into difficulties.

[3] The fuels especially used for international transport today are diesel and jet fuel.

To be useful in international transport, fuels need to

Be energy dense
Be easy to store
Match current infrastructure, unless change is many years away, and system is rebuilt
Be inexpensive; not require a lot of capital investment in infrastructure to support

Diesel and jet fuel have long been the prime fuels used for international travel and transport. “Bunker fuel,” which tends to be heavier and more polluting, has also been used. Its use is strongly discouraged today because of pollution issues.

[4] An issue we have today is that diesel is also essential for many other uses.

Diesel is an essential fuel today for food production and local transport. Most of the agricultural equipment now in use operates using diesel fuel. Diesel-powered machines can easily navigate muddy fields. In addition, diesel also powers most of the heavy semi-trucks around the world. These trucks deliver goods of all kinds, locally, including food.

Another essential use for diesel is building and maintaining infrastructure. This would include:

Roads
Bridges
Pipelines
Commercial buildings
Factories
Electricity transmission lines
Building and maintaining structures used to produce electricity, such as nuclear power plants and hydroelectric plants

The importance of diesel to the economy is difficult for most people to see because these are behind-the-scenes types of activities.

[5] It is very difficult to get the price of diesel to rise for any extended period.

If the price of diesel rises, the price of food tends to rise. This happens because diesel is heavily used in food production and transport. Needless to say, high food prices tend to be unpopular with voters. For this reason, even if the diesel supply is low, the price of the fuel doesn’t necessarily rise. If this happened, voters would be very unhappy. They would elect new politicians.

What, in fact, tends to happen is that oil prices (not just diesel and jet fuel prices) tend to bounce up and down. Figure 2 shows a chart of average annual oil prices.

Line graph depicting the average annual inflation-adjusted Brent oil price from 1948 to 2024, highlighting low prices before 1970. — Figure 2. Average annual Brent equivalent oil prices, in 2024 US$. Data for 1948 through 2024 from the *2025 Statistical Review of World Energy*, published by the Energy Institute. Data for 2024 estimated based on EIA estimates of spot Brent prices for 2025, adjusted for inflation.

Figure 2 smooths out some of the price irregularities. For example, there was a very high peak in July 2008, but the price fell to a low level by December of the same year. The peak doesn’t appear very high on this chart, but it greatly affected financial markets. See my article, Oil Supply Limits and the Continuing Financial Crisis.

[6] Diesel and jet fuel disproportionately come from oil that is quite “heavy.” Oil refineries tend to offer lower prices for heavy oil, making it unattractive to extract.

There is a price compression problem with heavy oil:

Heavy oil tends to be difficult to ship because it doesn’t flow through pipelines well. It often needs to be heated, or diluted with a very light oil, to make transportation possible.

To make matters worse, heavy oil quite often contains sulfur and other impurities that need to be removed, adding refining costs.

The problem is that these higher costs cannot easily be passed on to the ultimate consumers of diesel and jet fuel. For example, food production and transport depend significantly on diesel, and sometimes even on jet fuel. Consumers of food do not like high food costs.

Because of these issues, the prices refineries are willing to pay for heavy oil tend to be lower than the prices they offer for “light, sweet” oil. For example, the current oil prices shown on OilPrice.com are $70.51 for Brent Crude (a light, sweet European crude), $65.13 for West Texas Intermediate (a sweet US crude) and $50.86 for Western Canadian Select, from Canada’s Oil Sands. Russia also has moderately heavy oil; Russia’s Urals blend is diluted to make it flow adequately. Its price is listed at $54.48.

These pricing issues make the extraction of heavy oil, especially very heavy oil, unattractive to oil companies. Basically, oil prices do not rise high enough, for long enough, to make extraction profitable. People who look at the Energy Return on Energy Invested (EROEI) of resource extraction would say that the EROEI is very low. In other words, a huge amount of energy needs to be invested to make heavy oil extraction possible. This tends to make the cost of oil extraction expensive.

Because of this price compression, and thus the low prices paid to oil producers, it is not very profitable for oil companies to extract heavy oil. This means that governments cannot charge these companies very high taxes, or they will stop producing oil completely. In addition, tax revenue collected from oil producers tends to fall too low to provide adequate government services., and it also becomes difficult to pay workers adequate wages. These issues lead to unrest in countries with heavy oil reserves, but not much other industry, such as Venezuela.

[7] A naive look at the oil data received from the various agencies does not disclose the nature of the world’s oil problem.

A chart summarizing the consumption of different types of oil, based on data from the 2025 Statistical Review of World Energy, is as shown in Figure 3. Note that the Diesel+Jet Fuel layer is the product grouping with the largest consumption. In the US, we hear a lot about Gasoline, but Diesel+Jet Fuel is the layer with the greatest fuel consumption. Diesel+Jet Fuel provides a huge quantity of services, but its usage is mostly hidden from sight.

A line graph illustrating world oil consumption by type from 1980 to 2024, showing different categories including Heavy Group, Diesel and Jet Fuel, Gasoline, and Light Group, measured in million barrels per day. — Figure 3. Figure prepared using data from the “Oil-Regional Consumption” tab of the *2025 Statistical Review of World Energy*, published by the Energy Institute. The Light Group is the combination of naphtha, ethane, and liquid petroleum gas (LPG). These are close to gases. The other categories have longer molecules, and thus higher boiling points. The Heavy Group includes waxes, lubricants, asphalt, as well as a fairly unrefined oil, used as a cheap but polluting fuel, shown as “Fuel Oil” on the same tab.

Most published data show only the sum of the four layers in Figure 3. It seems to be rising. This amount represents a combination of quite a few types of oil. When this increasing production is considered along with the reported high oil reserves (particularly heavy oil in Canada and Venezuela), and the belief that prices will always rise if there is a shortage, most researchers cannot imagine that a problem might be occurring.

Researchers often overlook how crucial oil is to the economy. People all over the world need food, roads, and many other things that depend on oil. The number of people who can make an adequate living seems to depend upon the oil supply. It makes sense to look at oil supply per capita. The chart below uses the same amounts, divided by world population. On this basis, world oil consumption is flatter. In fact, per capita oil supply has been somewhat declining recently.

Line graph showing per capita world oil consumption by type from 1980 to 2024, with areas representing gasoline, diesel and jet fuel, and heavy oil usage. — Figure 4. Amounts shown in Figure 3, divided by world population used by the Energy Institute in its *2025 Statistical Review of World Energy.* Different colors are used in this chart compared to Figure 3.

The other thing that becomes apparent from this chart is that the overall mix of products coming out of current processes (extracting and refining oil) has been getting lighter over time. This should not be surprising because the most rapidly growing oil supply since 2008 has been tight oil, extracted from shale in the United States. This tight oil tends to be quite light, adding output to the Light Group and to Gasoline, far more than to Diesel+Jet Fuel or the Heavy Group.

[8] The pattern of diesel supply growth provides insight into what is going wrong with world trade.

Line graph showing global per capita diesel supply as a percentage of the 1980 level from 1980 to 2024, indicating a decline since 2008. — Figure 5. World per capita diesel supply based on data of the *2025 Statistical Review of World Energy*, published by the Energy Institute.

Diesel is about 78% of the combined grouping Diesel+Jet Fuel. The two are similar enough that refineries can slightly change the output mix between the two.

The World Trade Organization began operation in 1995. Its purpose was to encourage more world trade. The Kyoto Protocol of 1997 encouraged countries to cut their own CO2 emissions. The easiest way to do this was by sending manufacturing, mining, and other industries to other countries around the world. Thus, indirectly, the Kyoto Protocol also encouraged world trade. Figure 5 shows that between 1995 and 2008, per-capita world diesel consumption was increasing. The restriction in supply that began around 2008 corresponds with the flattening of world international trade shown in Figure 1.

[9] Several issues contributed to the drop in per-capita diesel supply starting about 2008.

(a) In the period before 2008, there was relatively more oil in the Heavy Group that could be refined into Diesel + Jet Fuel (Figure 4). Notice how the Heavy Group layer gets narrower, especially between 1980 and 2008. The Heavy Group includes end uses such as lubricants, waxes, and asphalt. It also includes some heavy oil consumed in close to an unrefined state, such as bunker fuel for ships. Burning such oil is very polluting, so laws have been changed to discourage its use. Simple refining could transform oil such as bunker oil into diesel and jet fuel.

(b) A technique called hydrocracking can be used to transform long hydrocarbon molecules, such as the ones that make up asphalt, into shorter ones. The EIA in 2013 reported, Hydrocracking is an important source of diesel and jet fuel. This technique is expensive, however. It needs a high selling price of crude oil for the economics to work. If the price of oil is high enough, it makes sense to make less asphalt, and more diesel oil and jet fuel.

(c) Price differentials tend to discourage the development of heavy oil fields. As documented in Section [6], the price refineries are willing to pay for heavy oil tends to be quite a bit lower than the price of lighter oil. In the early days of extraction, medium grades of oil tended to give a range of products, from light to heavy. But peak conventional oil took place about 2005, forcing oil companies to extract both very light grades and very heavy grades, with the hope of combining the two types of output to meet the needs of society. Since 2008, the growth in light oil extraction has been spectacular, particularly in the US, with its tight oil from shale. But growth in the heavy oil supply has tended to lag.

(d) Depletion is an issue for oil supplies. As with many other resources, the oil taken first is the oil that is easiest to extract and the closest to where the end product is to be used. The oil that is left for later tends to be higher cost to extract and transport. High-cost oil is likely to produce high-cost food. High-cost food tends to upset family budgets, making voters unhappy.

(e) Political issues play a role as well. A major issue is the low profitability of heavy oil extraction because of its low sales price to refineries. With low profitability, tax revenue based on oil royalties tends to be low. Without adequate tax revenue, leaders of countries producing heavy oil for export tend to become belligerent. Examples include Venezuela, Russia, and Canada. Within the US, California produces heavy oil.

[10] The world order seems to on the verge of radical change.

We are now facing a situation in which the world economic order seems to be breaking apart, in order to form a new order that “works” better with the changing quantity of Diesel+Jet Fuel available.

We are dealing with a situation that has much in common with a game of musical chairs.

A circle of red wooden chairs arranged in a circular pattern on a white background, casting shadows. — Figure 6. Chairs arranged for Musical Chairs Source: Fund Raising Auctioneer

The game of musical chairs is played in rounds. At the beginning, there are as many players as chairs. In each round, one of the chairs is removed. The players walk around the circle of chairs until the music stops. When the music stops, all the players try to grab a chair to sit on. There can be small fights over who gets a chair. The person who does not get a chair is eliminated from the game.

When an economy is faced with an inadequate supply of Diesel+Jet Fuel, it needs to regroup in a different way. To do this, some existing businesses and governments must fail, so that others can take their place. In addition, supply lines need to be rearranged to use the resources that are actually available. Customs and beliefs may need to change, as well.

The way nations interact can change as well. In the years of growing international trade, (1970s to 2008), co-operation seemed to be important. Working together was relatively easy. During the tearing down stage, which seems to be starting now, the situation can be expected to be very different. We can expect assertive leaders, and lots of conflict. We are facing this strained situation today.

[11] What lies ahead?

I don’t think that any of us know for certain what will happen in the future. Nevertheless, the self-organizing world economy seems to be organizing for itself what is ahead. Or perhaps, the hand of a Higher Power is organizing what is happening.

I have only discussed the problem of inadequate Diesel+Jet Fuel, and its impact on international trade and some other parts of the economy. There are other shortages that the world economy needs to work around, that I have not touched on:

In many parts of the world, one shortage is of fresh water. This is often connected with depleted aquifers and today’s high human population.

Another shortage relates to the critical minerals required for a high-tech society. Billionaire Robert Friedland describes the issue in this video. We have plunged headlong into high tech goods of all kinds, including wind turbines, solar panels, electric vehicles, batteries, computers, and electrification of many kinds of things without realizing that we would soon reach limits in the supply of many minerals used in making these high-tech devices.

For many of these minerals, China controls the vast majority of these critical minerals. Countries must try to start producing their own critical minerals, or remain on good enough terms with China to purchase some of the limited supplies available.

A third shortage relates to nuclear, and our plans to ramp up nuclear energy. As far as I can see, uranium extraction is currently constrained. In theory, it can be ramped up, but it takes a long chain of events to do so.

With these shortages, AI seems to be constrained in how quickly its use can be expanded. It needs to become far more energy efficient to be truly useful.

With all of these issues, it seems impossible to keep forging ahead as we have done in the recent past. We are being forced to source more of our manufactured output locally. We need to greatly reduce the transportation of goods across the Atlantic and Pacific. Using tariffs seems to be a way of trying to accomplish this change.

Strange as it may seem, some of Trump’s policies make a certain amount of sense, when viewed in the light of the issues the world is facing. I expect that a replacement leader would be just as abrasive. The new leader would likely have different strange policies, but the underlying problems are structural. The new leader would likely also face difficulties in trying to fix today’s problems.

I am afraid we will have to wait for the self-organizing economic system to find a solution for us. Perhaps innovations can bring us new ways of doing things that will eventually work around these difficulties. But, for the near term, higher levels of conflict because of resource shortages seem likely.

Posted in Financial Implications, News Related Post | Tagged EROEI, oil prices | 1,446 Comments

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Our Finite World

A New Explanation for Tariffs and Bombings

The underlying problems are energy-related

[1] Figure 2 is a stacked bar chart showing similar indications to Figure 1.

[2] The largest increases in Figure 2 correspond to favorable economic times.

[3] Figure 3 shows more recent world energy data organized by 5-year periods. It shows how small the “red caps” of the types leading to favorable economic outcomes have been in the last decade.

[4] Viewed on this same basis, diesel and jet fuel supplies are being squeezed even more than the overall supply of energy products.

[5] The underlying problem is that populations tend to outgrow their resource bases, including energy supplies.

[6] It is easy to make electricity look like a growth area that can continue its pattern forever.

[7] In the Advanced Economies, electricity production has recently been falling on a per capita basis, making a shift to greater electrification seem difficult.

[8] Other issues are also making a continued shift to electrification appear difficult, particularly for the Advanced Economies.

[9] We don’t hear about these issues partly because academic researchers live in ivory towers, and partly because politicians don’t dare explain the issues to voters.

[10] What is happening now is similar to the outcome of a game of musical chairs, when there is one fewer chair than the number of players.

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Why Oil Shortages May Bring Lower Prices–and Recession

[1] Reserves of already-pumped US oil have dropped to concerningly low levels.

[2] Perhaps because of concern about low buffer supplies, the US has negotiated a deal with Iran that seems unfavorable to the US.

[3] Trump or another leader cannot restart the war against Iran and expect to do any better.

[4] One motivation for attacking Iran might have been to raise oil prices to a higher level.

[5] Oil prices since the war started on February 28 have not bounced very high. Recently, they have tended to fall back, close to their pre-war level.

[6] I expect that oil prices will continue to remain relatively low, or they will only briefly rise to high ($150+) levels, even if there are actual oil supply disruptions.

[7] What we may see more of is broken supply chains.

[8] The operation of the economy depends on an adequate supply of many kinds of energy. If oil supply is reduced, an economy needs to shrink to a smaller size to match. This is what leads to recession.

[9] We are ultimately dealing with multiple not-enough-to-go-around scenarios. This situation will tend to increase conflict in the world.

[10] War can seem like a solution.

[11] There may be lessons to be learned from the 2020 Covid restrictions and the ultra-low oil prices that resulted then.

[12] What might be ahead?

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China and US Trade Talks: A Solution for Oil Shortages?

[1] Based on the ideas of Dr. Mohammed Marandi, I believe that China might be able to mediate a settlement between the US and Iran.

[2] The world doesn’t have enough diesel and jet fuel to maintain the current level of trade across the Atlantic and Pacific Oceans.

[3] Looking at population and oil supplies, the Americas seems likely to come out somewhat ahead.

[3a] Comparing the populations of the two areas, the World ex Americas is much larger, and its population is growing faster.

[3b] The Americas seem to have an advantage with respect to crude oil production.

[3c] Crude oil production by geographical area outside of the Americas shows declining production in all areas.

[4] In terms of mining and manufacturing, the Americas seems to come out behind the World ex Americas.

[5] The full transition to the configuration shown on Figure 1 could take well over 100 years.

[6] If energy supplies are limited, I would expect population centers closest to fuel sources to be especially favored.

[7] I am concerned that a major downward economic step will be necessary in the upcoming months and years, but I am hopeful that the meeting between President Trump and President Xi on May 14-15 can help smooth the way.

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Losing the Iran War May Be the Best Outcome for the World

[1] Background

[2] The world’s fossil fuel economy already seems to be at a turning point in its economic cycle.

[3] In order for an economy to “work,” oil prices need to be both low enough for consumers, buying end products such as food made possible by the use of oil, and high enough for oil producers.

[4] Since 2014, oil prices have been too low for countries that use taxes on oil exports as a major source of tax revenue.

[5] Without the war, LNG prices would also have been too low for LNG exporters.

[6] From Iran’s point of view, I see the war as similar to a suicide, when a farmer can no longer support his family.

[7] Losing any significant share of energy supply is likely to significantly reduce world GDP.

[8] The US understands the importance of Middle Eastern oil and gas. It uses its strong relationship with Israel to further its military presence in the Middle East.

[9] Trump realizes that winning the war against Iran is absolutely essential if the US is to retain global hegemony.

[10] Conclusion

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A New Explanation for Tariffs and Bombings

The underlying problems are energy-related

[1] Figure 2 is a stacked bar chart showing similar indications to Figure 1.

[2] The largest increases in Figure 2 correspond to favorable economic times.

[3] Figure 3 shows more recent world energy data organized by 5-year periods. It shows how small the “red caps” of the types leading to favorable economic outcomes have been in the last decade.

[4] Viewed on this same basis, diesel and jet fuel supplies are being squeezed even more than the overall supply of energy products.

[5] The underlying problem is that populations tend to outgrow their resource bases, including energy supplies.

[6] It is easy to make electricity look like a growth area that can continue its pattern forever.

[7] In the Advanced Economies, electricity production has recently been falling on a per capita basis, making a shift to greater electrification seem difficult.

[8] Other issues are also making a continued shift to electrification appear difficult, particularly for the Advanced Economies.

[9] We don’t hear about these issues partly because academic researchers live in ivory towers, and partly because politicians don’t dare explain the issues to voters.

[10] What is happening now is similar to the outcome of a game of musical chairs, when there is one fewer chair than the number of players.

Share this:

Like this:

Understanding Deglobalization: The Role of Diesel and Jet Fuel

[1] Background: The world economy is a dissipative structure, operating under the laws of physics.

[2] Researchers in academic settings make many unwarranted simplifications in their models.

[3] The fuels especially used for international transport today are diesel and jet fuel.

[4] An issue we have today is that diesel is also essential for many other uses.

[5] It is very difficult to get the price of diesel to rise for any extended period.

[6] Diesel and jet fuel disproportionately come from oil that is quite “heavy.” Oil refineries tend to offer lower prices for heavy oil, making it unattractive to extract.

[7] A naive look at the oil data received from the various agencies does not disclose the nature of the world’s oil problem.

[8] The pattern of diesel supply growth provides insight into what is going wrong with world trade.

[9] Several issues contributed to the drop in per-capita diesel supply starting about 2008.

[10] The world order seems to on the verge of radical change.

[11] What lies ahead?

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**[3] In order for an economy to “work,” oil prices need to be both low enough for consumers, buying end products such as food made possible by the use of oil, and high enough for oil producers.**