Worrying indications in recently updated world energy data

Posted on July 14, 2025 by Gail Tverberg

The Energy Institute recently published its updated energy report, the 2025 Statistical Review of World Energy, showing data through the year 2024. In this post, I identify trends in the new data that I consider worrying. These trends help explain the strange behaviors that we have been seeing from governments recently.

A major hidden issue is that prices never seem to rise high enough, for long enough, to prevent production of fossil fuels and other mineral resources from declining relative to what is needed for the world’s rising population. Reserve numbers appear plenty adequate but, because of affordability issues, we cannot actually extract the resources that seem to be available. We should expect declining production because low prices drive more and more fossil fuel and other mineral producers out of business.

[1] The world’s per capita affordable supply of diesel has been declining, especially since 2014.

Because of it is high energy density and ease of storage, diesel is important in many ways:

  • Diesel powers a substantial share of modern agricultural equipment.
  • Diesel is the fuel of the huge trucks that carry goods of all kinds.
  • Diesel powers much of the world’s construction and earth-moving equipment.
  • Diesel (and other similarly energy-dense but less refined fuels) allows long-distance transport by ship.
  • Diesel is widely used in mining.
  • Diesel powers some trains, provides backup electricity generation, and powers some irrigation pumps.
Line graph showing world per capita diesel supply as a percentage of the 1980 level from 1980 to 2024, indicating a decline since 2008.
Figure 1. Chart showing the level of per-capita diesel consumption, relative to the per-capita consumption in 1980. Amounts are based on Diesel/Gasoil amounts shown in the “Oil-Regional Consumption” tab of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 1 suggests that the supply of diesel started being constrained during the 2008-2009 recession. The decrease became more pronounced starting in 2014, which was when oil prices fell (Figure 12). In fact, this downward trend since 2014 continued into 2024. The constraint in diesel production/consumption comes through oil prices that fall too low for the producers of diesel. If prices rise, they don’t stay high for very long.

If there isn’t enough diesel, cutbacks in some applications will be needed. One new workaround for the inadequate supply of diesel seems to be a reduction of international trade through tariffs. If goods can be produced closer to where they are purchased, then perhaps the economic system can accommodate the declining availability of the diesel supply a little longer.

It should be noted that jet fuel consumption is also constrained. The type of oil used is quite similar to diesel. Transferring the transportation of goods from trucks and ships to jet aircraft is not a solution!

[2] Copper supply seems to be constrained.

There has been much discussion of transitioning to the use of more electricity and less fossil fuels. This would require both a greater build out of electricity transmission systems and more use of electric cars. Each of these uses would require more use of copper. Electric cars are reported to each require 40kg to 80kg of copper, while cars with internal combustion engines use only 20kg of copper. Building charging stations for all these cars would further add to copper needs, as would adding new transmission lines to carry the higher total electricity supply.

Line graph depicting world copper production from 2014 to 2024, showing a trend suggesting constraints in supply. Labels indicate production measured in million tons, with notable production levels around 20 million tons.
Figure 2. World copper production, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 2 shows that even with the expected increase in demand for copper resulting from a shift toward electrification, total world extraction of copper has remained relatively flat. A major issue is that it takes a very long time to build a new copper mine. Worldwide, the average time to new production is 17.9 years. For this reason, a temporary increase in price cannot be expected to drive up production very quickly. If diesel is used in extracting copper, and diesel’s consumption is constrained, the restricted diesel supply can also be an issue in expanding the copper supply.

The new tariffs on copper, announced by President Donald Trump, seem to be intended to drive industries that use copper to look for substitute minerals. With a very long lag, the tariffs might also lead to an increase in copper production. Tariffs have more staying power than volatile price changes. There doesn’t seem to be a quick solution, however.

[3] Platinum extraction also seems to be constrained.

Line graph showing the world production of platinum group metals from 2014 to 2024, with production levels fluctuating around 350 to 450 thousand tons.
Figure 3. World production of platinum and palladium (which is closely related) based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Platinum currently has a wide variety of applications, including use in catalytic converters, jewelry, medicine, and industry.

Some people are also hopeful that platinum will enable the wide use of hydrogen fuel cells to help meet the world’s demand for electrical power in a way that doesn’t require burning fossil fuels.

One issue mentioned in the lack of growth in platinum production is persistently low prices. New mines will not be opened unless it is clear that production will be profitable. Another source indicates that the largest producing country, South Africa, has been having problems with electrical supply and rail transportation. These problems, in turn, seem to be related to South Africa’s dwindling coal supply. Its peak coal production took place in 2014. We should not be surprised if South Africa continues to have problems producing platinum in the future.

[4] Up until this report, the Statistical Review of World Energy has used an optimistic approach to quantifying the benefits of intermittent renewable electricity.

The traditional method of evaluating energy products involves analyzing the amount of heat produced in combustion. In past years, the Statistical Review of World Energy used a method that essentially assumed that the intermittent electricity produced by renewable sources (including hydropower) completely substitutes for the equivalent dispatchable electricity generated by fossil fuels. I think of this as the “wishful thinking” methodology.

The current methodology gives renewables less credit, recognizing the fact that intermittent sources substitute primarily for the fuel that electricity generating plants would use. It is becoming increasingly clear that intermittent power doesn’t work very well on a stand-alone basis. Many types of workarounds, including batteries and backup fossil-fuel generation, are required to supplement it.

The new methodology gives about 22% more credit to nuclear power than the old method. Nuclear power can be counted on 24 hours per day. Also, like fossil fuel generation, it provides the necessary inertia (the energy stored in large rotating components such as generators, which allows the power system to maintain a steady frequency) to keep electricity moving through transmission lines. Without sufficient inertia, electrical outages similar to that recently experienced in Spain, are likely.

The revised methodology seems to align better with the methods used by the US Energy Information Administration and the International Energy Agency. In the past, it has been confusing with major agencies using different methodologies.

[5] With the new methodology, there are significant changes in patterns from past reports.

With the new methodology, the percentage of energy generated directly by fossil fuels is higher than many of us remember from past reports. Now, the portion of fossil fuel consumption that comes directly from fossil fuel generation has been reduced from 94% in 1980 to 87% in 2024. Using the old methodology, the fossil fuel percentage in 2024 would have been 81%.

Line graph showing the percentage of fossil fuel in total world energy supply from 1980 to 2024, indicating a decline from over 94% to around 86%.
Figure 4. Fossil fuel energy as share of total energy generation based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 5 shows the history of non-fossil fuel types of energy, as percentages of total world energy supply. It should be noted that even these types of energy require some use of fossil fuels. Such fuels are used in the initial construction of the devices, for their maintenance, for energy storage, and for transportation (or transmission) to where the energy product is used.

Line graph showing the percentage of total world energy from non-fossil fuel types, including Nuclear, Hydroelectric, Wind + Solar, and Geo, Biomass, Other from 1980 to 2024.
Figure 5. Non-fossil fuels as share of total energy supply based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 5 shows that the share of energy produced by “Nuclear” hit a peak of 7.6% in 2001, and it has been declining ever since. “Hydroelectric” has grown a bit over the years relative to world energy supply.

“Geo, Biomass, Other” as a share of world energy supply has been relatively flat in recent years. It includes biomass in the form of ethanol and biodiesel, which are non-electricity forms of renewable energy. It also includes electricity from geothermal generation, and from burning wood chips and sawdust.

The only real “winner” in recent years has been “Wind + Solar.” As of 2024, this category amounts to 2.9% of world energy supply. It certainly cannot, by itself, power an economy like the one we have today. Section 7 of this post explains a bit more about this issue.

[6] The sad state of nuclear generation deserves a discussion of its own.

There seem to be many factors underlying the substantial decline in nuclear electricity, as a share of total energy supply, between 2001 and 2013:

  • There were three major accidents at nuclear power plants, leading to worries about the safety of nuclear generation (Three Mile Island, 1979; Chernobyl, 1986; and Fukushima, 2011).
  • The pricing scheme for wind and solar generally gives “priority” to wind and solar. This leads to negative wholesale prices for electricity at some times, and very low prices at other times, for nuclear power plants. This pricing scheme tends to make nuclear power plants unprofitable. I expect that this lack of profitability has been a major issue in the recent decline of nuclear generation.
  • There doesn’t seem to be enough uranium produced to support much more nuclear generation than is used today. The US has been using down-cycled nuclear bomb material, but that is now becoming exhausted. See my earlier post.
  • Uranium prices never bounce very high for very long. If prices were a lot higher over the long term, more uranium mines might be opened, and more uranium extracted.
  • Opening a new mine often involves lag times of 10 to 15 years, making any ramping of uranium production a slow process.

There is also the issue of financing any shift to nuclear electricity. Upfront costs are huge, but nuclear power plants (with proper fossil-fuel-based maintenance) can operate for 60 to 80 years. As limits on fossil fuels are reached, building all these plants, using large amounts of fossil fuels, seems likely to reduce fossil fuels energy available for other uses. This makes financing a major challenge.

[7] The recent annual rising trend of 0.2% in per capita consumption of energy looks vulnerable to disruption by any economic problem that arises.

Line graph showing world energy consumption by type from 1980 to 2024, with categories for Geo, Biomass, Other, Solar, Wind, Hydroelectric, Nuclear, Natural Gas, Coal, and Oil, measured in Exajoules per year.
Figure 6. World energy consumption by type of energy based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

A major reason why energy consumption keeps rising is because, as population rises, there is a need for more food, housing, and transportation for this larger population. The consumption of energy products allows people to meet these needs. In fact, every aspect of GDP depends upon energy consumption.

A line graph showing world per capita energy consumption from 1965 to 2022, with gigajoules per capita on the vertical axis and years on the horizontal axis.
Figure 7. World per capita energy consumption based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Figure 7 indicates that world energy supply per capita rose between 1965 and 1979. It remained relatively flat between 1979 and 2002 and then rose quite rapidly until 2008. Since then, its growth rate has again been essentially flat. Fitted trend lines show what these growth trends have been:

A line graph depicting world per capita energy consumption from 1965 to 2022, showing varying trends over different periods.
Figure 8. Similar to Figure 7, with exponential trend lines fitted for time periods noted in text.

I have written recently about the huge US government debt increase since 2008 that has tended to prop up both the US and world economies. With all this “support” since 2008, the fact that world per capita energy consumption growth has only risen by 0.2% per year is frightening. With the high level of debt, there is a danger that there will be another major recession that could bring huge financial difficulties. At some point, higher debt levels become unsupportable. Thus, what is really an energy crisis can “morph” into a financial crisis.

Graph displaying world energy consumption growth from 1966 to 2024, highlighting significant fluctuations during key economic events.
Figure 9, One-year increase in total world energy consumption based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

The types of events that have brought energy consumption down in the past are quite varied, as shown on Figure 9. Note that the lows keep getting lower. There is a danger that another recession-type event could come along and push the world economy toward a long-term downtrend in energy supply per capita.

[8] China plays a huge role in the world’s energy consumption. As resource limits are hit, China has the potential to pull the world economy down with it.

China energy consumption (Figure 10) follows a very different pattern from world energy consumption (Figure 6).

Line graph showing China's energy consumption by type from 1980 to 2024. The graph includes categories like coal, oil, natural gas, nuclear, hydroelectric, wind, solar, and geo, biomass, other, with varying colors for each type.
Figure 10. China’s energy consumption by fuel based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

There are several important things to notice about China’s energy pattern:

(a) China’s energy consumption is heavily dominated by coal.

(b) There was a sharp expansion in China’s energy consumption, starting about 2002. This is related to China joining the World Trade Organization (WTO) in December 2001. On Figure 8, we noted 2.0% annual world per capita energy consumption growth between 2002 and 2008, which was far greater than in either the period before 2002 (at 0.2%), or the period after 2008 (at 0.2%). This shifting pattern was largely driven by China’s spurt in energy consumption after joining the WTO.

(c) China’s energy consumption has been growing more rapidly than that of the rest of the world. This is closely related to China’s becoming the leading manufacturer for the world economy, at the same time most of the wealthier countries have been moving manufacturing to lower-cost areas (ostensibly to reduce CO2 emissions).

(d) China’s energy consumption now plays an outsize role in the future of the world economy. In 2024, China consumed 27% of the world’s energy supply. This is more energy than that consumed by the US (16%) and the EU (9%) combined.

(e) With this energy dominance, any stumble in the world’s supply of fossil fuels and other mineral resources will affect China.

One area where China is running into limits is with respect to oil supply. China imports most of its oil. Comparing 2024 to 2023, China’s total oil consumption decreased by 1.4%. Its diesel consumption decreased even more, by 2.8%.

As the leading manufacturer of the world, China has been consuming huge amounts of minerals such as copper. This Copper Council report seems to indicate that China uses about 56% of the world’s copper supply. If there is a shortage of copper, China will be affected.

We can look at energy consumption growth on a per capita basis. Not surprisingly, China’s rapid growth has pulled down per capita energy consumption growth elsewhere.

Line graph showing energy consumption per capita from 1965 to 2022 for the world, world excluding China, and China, with gigajoules per capita on the vertical axis.
Figure 11. Energy consumption per capita, separately for the World, China, and the World excluding China, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

The pattern shown in Figure 11 is disturbing. Outside of China, energy consumption per capita has been falling for a long time. The rest of the world, to a significant extent, has lost its ability to manufacture the goods needed for its own people. China’s energy consumption per capita is now reported to be on a par with Europe’s, but China, too, faces issues as it encounters resource limits of many kinds.

No wonder there is conflict among nations! Every country would like limited resources. If one country has more, other countries will get less.

[9] Inflation-adjusted oil prices have bounced around, rather than following a consistent upward pattern. This limits their long-term impact on production.

Line graph showing the average annual Brent oil price in 2024 US dollars from 1965 to 2024. The graph illustrates fluctuations in oil prices over the decades, with notable peaks and valleys.
Figure 12. Average annual inflation-adjusted oil prices based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.

Commodity prices of all kinds seem to be influenced by many temporary situations, including debt availability and concerns about war. Higher prices do induce short-term changes that can influence supply of some energy products. For example, when oil prices are high, more production of diesel can economically be achieved by “cracking” long molecules of very heavy oil to produce shorter diesel-length molecules. When oil (and diesel) prices are low, this conversion process starts to be money-losing.

Thus, as we saw in Figure 1, diesel production increased between 1994 and 2008, in line with rising oil prices (Figure 12). Conversely, diesel barely held steady between 2008 and 2014. After 2014, when oil prices were clearly lower, diesel production fell significantly.

A major problem in creating greater mineral supplies for the long term is that new mines of all types take many years to develop. So does opening a completely new oil field. Prices tend not to stay high enough, for long enough, to encourage opening new mines and new oil fields. We see this pattern repeatedly, in diverse areas, including oil, copper, platinum and uranium, holding down the supply of these mineral resources.

Over the long term, affordability seems to play a larger role than rising demand in the prices of commodities, holding prices down. As a result, it is low prices that seem to lead to the falling production of commodities.

[10] Conclusion

This analysis confirms what I have shown earlier: The world economy is hitting energy limits in many ways.

I have written about the world’s diesel and jet fuel shortage in the past. Updated data from the 2025 Statistical Review of World Energy confirms that the world’s diesel supplies are not rising sufficiently to keep pace with world population growth. I believe that the shortage of diesel, and perhaps of oil in general, underlies the push toward more tariffs. One effect of tariffs may be to reduce the amount of long-distance shipping.

The 2025 Statistical Review of World Energy includes data for a few minerals that will likely be used if there is a transition away from fossil fuels. Of the minerals shown in the report, copper and the platinum group seem to be the most limited in supply. The relatively flat production at a time when demand should be expected to be rising gives us a clue that limits are being reached. Unless someone can figure out a way to get prices to stay at a significantly higher level, low supply of these minerals is likely to remain a long-term problem.

The overall energy supply does seem to still be rising slowly, but progress in transitioning to non-fossil fuels is painfully slow. We hear much talk about ramping up nuclear electricity production, but my analysis suggests that such a transition will be difficult, at best.

There is a great deal more analysis that can be done with the new data. I expect to be looking at this data in more detail in future posts.

Posted in Alternatives to Oil, Energy policy, Financial Implications | Tagged , , | 1,300 Comments

What should individuals do in a world filled with conflict?

Posted on June 18, 2025 by Gail Tverberg

Today, the world is filled with conflict. Part of the problem is oil limits, but there are many other issues as well:

  • Resources such as coal, lithium, and copper are also becoming more expensive to extract.
  • Fresh water is often inadequate for the world’s rising population.
  • Debt levels are very high.
  • Complexity is very high.
  • An adequate standard of living is becoming unaffordable for many people.
  • The increasing world population leads to a need for more food and more paved roads.

These symptoms strongly suggest that the world economy is headed for a slow-motion collapse.

A graph illustrating the concept that societal collapse follows a predictable pattern, showing the relationship between complexity, fossil fuel consumption, wage and wealth disparity, and the resulting declines in population and GDP.
Figure 1. Overall pattern of today’s predicament, in an image by Gail Tverberg. We seem to be up near the top now.

The system causing the problem is physics-based. Without enough affordable energy of the right types, the economy tends to collapse. This is the predicament we are facing today.

What should ordinary citizens do? I am not certain that there is one correct answer, or that I know it. In this post, I would like to offer some suggestions for discussion.

[1] Every day, give thanks for the many things you do have.

We are at the peak of resources per capita. This means that, as a group, we have as many goods and services as any population that has ever lived. We also have lots of natural resources remaining. We have a huge amount of complexity, with many young people receiving university degrees.

It is easy to lose sight of how much we do have. Most readers of this blog eat a variety of food in the quantities desired. We live in homes that are heated in winter. Even today, many people around the world are not as fortunate as we are.

[2] To the extent possible, stay away from conflict yourself.

The physics of the system will create conflict because the system must change if there is no longer enough oil to ship huge amounts of goods and services across the Atlantic or Pacific Oceans. Perhaps a few highly valued goods and services can be shipped long distance, but patterns must change to put the production of goods and services closer to the consumption of goods and services. This is a major reason why countries are quarreling now.

There is no point in individuals strongly objecting to cutbacks in trade because today’s lack of oil supply is demanding these cuts. The only way one country can lessen the impact of the reduced oil supply is to push the reduction in indirect oil consumption onto another country, using quotas or tariffs on its imports of goods and services. Needless to say, pushing other countries down to benefit one’s own country is likely to create conflict.

Another issue is that with reduced oil and other energy supplies, governments cannot continue to provide as many services as they have in the recent past. They need to reduce the number of government workers in many departments. This is the reason for the many cutbacks by the US Department of Government Efficiency and similar cuts in other countries. It also means that benefit programs, such as those aimed at seniors, the disabled, or hurricane relief, will need to be reduced or eliminated in the future.

We can argue about which programs should be cut back first, but ultimately, all government programs will need to be cut back substantially. Just printing money to try to solve the problem will likely lead to inflation; money doesn’t solve the physics problem we are facing. Energy products of the right kinds are needed for every part of GDP; not having sufficient oil is likely to cut back the supply of goods produced using oil products, including food.

If you get involved in protests, or even in war, you will be putting yourself in harm’s way. And, in the long run, you are unlikely to gain significant benefits personally.

[3] Expect declining complexity in the future.

There are many aspects to complexity:

  • Much international trade
  • Much debt
  • Businesses with multiple layers
  • Governments providing a wide range of services, including pension plans and health care
  • Energy efficient vehicles
  • Appliances that are designed to save energy
  • Healthcare with many specialized physicians and high-cost drugs
  • Agriculture with many hybrid seeds, herbicides, insecticides, and soil amendments

All these types of complexity will need to be scaled back in the future, but we don’t know precisely to what extent or how rapidly. We cannot go back to old solutions because these won’t necessarily be available. For example, we know from the past that if an economy no longer operates with horses and carriages, it will no longer make buggy whips.

We need to expect a rapidly changing world. Complex appliances we own will fail, and we will not be able to obtain replacement parts. Many drugs imported from Asia will no longer be available. Homes purchased with debt will be affordable by fewer and fewer people. We need to be aware of these issues and change our expectations accordingly.

[4] Expect fewer goods and services to be available in the future, and money to have less value.

We are no longer moving to an ever-better world; we are moving (at least for a few years, perhaps much longer) to a shrinking world economy. Do not be surprised if home values drop and stock market values fall.

Saving money for the future makes less and less sense because fewer goods and services will be available to buy in the future. Even saving gold will not necessarily work around the problem of there being fewer goods to buy. For example, farmers and others involved in producing food will likely get food before others, to assure the continued production of food. This will leave less food for others to buy.

Electricity is likely to become intermittent in the years ahead. It would seem wise to stay away from purchasing condominiums that can only be accessed by elevators.

[5] Focus on the present, not the past or the future.

In our current world, great stress is placed on planning for the future. For example, workers are encouraged to save for retirement, and young people are encouraged to take courses that will allow them to work in a well-paying occupation for the long term. This plan assumes that that the upward trend we have seen in the past will continue. We also expect that governments will be able to make good on their promises.

But we really cannot expect this pattern to continue for the long term. The best we can hope for is that what we have right now will continue. If a family member is lost, the remaining members will need to pick themselves as quickly as possible and continue as best they can. This is one reason an extended family is helpful in Africa. Such an approach will increasingly be helpful elsewhere.

Fossil fuels have made retirement possible. As fossil fuel availability declines, retirement is less likely to be available. Everyone will need to work as long as they are physically available. Thus, saving for retirement becomes a less useful goal.

[6] Living in groups, particularly family groups, will increasingly make sense.

When things were going well, and wages of most educated people were high, it made sense for many people to live by themselves. If they had an argument with their spouse, picking up and leaving might sound like a sensible idea. The job of each spouse would be sufficient to pay for housing for each separately.

As the economy goes downhill, people will need to live in more compact housing in order to save on heating and transportation expenses. Multiple generations will increasingly need to live together. In the case of singles, they will increasingly need to band together. Government programs will likely not be sufficient to provide separate living arrangements for a mother with children or for elderly individuals in care homes.

[7] Young people should not go into debt for higher education.

At this point, the US has educated far too many people with college degrees (and beyond) relative to the number the economy can afford to hire. With declining complexity, adding more college-educated workers to the pool makes little sense.

A better choice for most young people is a short course or certificate program leading to a useful skill, such as appliance repair or becoming a licensed practical nurse. Apprentice programs may also make sense.

If families are wealthy enough to pay for their children’s education, a few people with advanced degrees will probably be needed. There may be some solutions to today’s problems that can be tackled by these individuals.

[8] People will need to be more flexible in their career choices.

As the economy changes, job availability will change. Demand for workers in many of today’s high-paying careers will likely decline. For example, fewer specialty physicians will be needed. There will also be a need for fewer college professors, fewer stock market analysts, and fewer computer programmers.

The most immediate new jobs will involve the demolition of infrastructure that is no longer needed, such as movie theaters, shopping malls, office buildings, and many homes. Some materials will likely be saved for reuse elsewhere. This may involve heavy labor. Smaller, more local stores or open-air markets may open. Jobs previously held by immigrants picking vegetables and fruit will also be available.

How does a person step down from a high-paid desk job to a low-paid manual labor job? I don’t know. But, somehow, we need to be thinking through this issue.

[9] People should focus on taking care of their own health through healthy eating and adequate exercise.

I expect the healthcare industry will be forced to change. One part of the problem will be fewer imported drugs and medical devices; another will be that most people will be less wealthy. They will not be able to afford the enormous costs of today’s bloated US healthcare system. Somehow, the system will need to shrink back.

Fortunately, there is a way that people can become healthier, despite lower spending. People can cook their own food, instead of buying over-processed food available from grocery stores and restaurants. They can eat less meat than the average American eats, and they can stay away from sugary soft drinks. They can exercise more. Part of this exercise can take place by walking to more local markets.

[10] Planting a modest garden, as far as this is possible, is probably a good idea.

Most people do not have sufficient land to plant very much in the way of food crops. In fact, a large share of my readers probably lives in apartment buildings. And most young people, attempting to live on their own, will not have space to grow food crops. The cost of buying land is likely to be high, and property taxes will need to be paid.

If space is available on property that is already owned, fruit trees that grow and bear fruit without the need for pesticide spraying are a good choice. These trees will likely take several years to get started. Potatoes are another reasonable choice, as are vegetables in general.

It is not clear to me that people who set out to operate a self-sufficient farm will have much success. They require a complex infrastructure to support them. Such farms are very vulnerable to robbers and generally don’t have good backup plans if something goes wrong, such as the farmer becoming injured. I wish these individuals success in their endeavors, but I am not optimistic that these farms will succeed beyond their first major setback. We need a bridge to sustainable agriculture, but it is hard for me to see one right now.

[11] Concluding Observation: Why standing back from conflict is a suitable approach.

Most people have a completely mistaken idea regarding what oil limits will look like. They assume that oil limits will lead to very high prices or long lines at gasoline stations. They fail to appreciate that oil limits will arrive at the same time as many other limits, including affordability limits. They also fail to understand that prices that are too low for producers will bring down oil production quickly. In fact, too low oil prices, rather than too high, are the issue the world is facing today.

What oil limits really lead to is lots of conflict: among nations, among political parties, among people who feel that it is unfair that they have spent a lot of money on an advanced education but cannot find a job that pays well enough to repay their education-related debt with interest. As limits of many kinds mentioned in the beginning of this post are hit, today’s economy will need to greatly shrink back in size. Many governmental structures that we expect today, including the EU, the World Bank, and the UN, may disappear.

We don’t know precisely what is ahead over the longer term. Some people believe a religious ending is likely. Other people think that some of the research that is currently underway may eventually lead to a solution. Still others are concerned that some parts of the world will need to shrink back to a very low level, perhaps similar to hunter-gathering, before these economies can grow again.

Regardless of how things play out, it is the physics of the self-organizing system that determines what happens next. No matter how offended we as individuals may feel regarding what some political party or politician has done or has not done, individuals are not able to fix the system, except to the extent that available inexpensive energy supply allows such a fix. This is why standing back from whatever conflict is taking place seems to me to be a suitable strategy.

Posted in Financial Implications, News Related Post, Planning for the Future | Tagged , , | 1,547 Comments

Economic contraction, coming right up

Posted on May 27, 2025 by Gail Tverberg

I predict that the world economy will shrink in the next 10 years. I think that this is bound to happen because of energy and debt limits the world economy is hitting. There are a variety of other factors involved, as well.

In this post, I will try to describe the physics-based limits that the economy is facing, related to diminishing returns of many kinds. The problem we are facing has sometimes been called “limits to growth,” or “overshoot and collapse.” Such changes tend to lead to a loss of “complexity.” They are part of the way economies evolve. I would also like to share some ideas on the changes that are likely to occur over the coming decade.

[1] The world economy is a tightly integrated physics-based system, which is experiencing diminishing returns in far more areas than just oil supply.

When extraction of a mineral takes place, usually the easiest (and cheapest) portion of the mineral deposit is extracted first. After the most productive portion is removed, the cost of extraction gradually increases. This process is described as “diminishing returns.” Generally, more energy is required to extract lower quality ores.

The economy is now reaching diminishing returns in many ways. All kinds of resources are affected, including fossil fuels, uranium, fresh water, copper, lithium, titanium, and other minerals. Even farmland is affected because with higher population, more food is required from a similar amount of arable land. Additional-cost efforts such as irrigation can increase food supply from available arable land.

The basic problem is two-fold: rising population takes place while the easiest to extract resources are depleting. The result seems to be Limits to Growth, as modeled in the 1972 book, “The Limits to Growth.” Academic research shows that problems such as those modeled (sometimes referred to as “overshoot and collapse”) have been extremely common throughout history.

Precisely how this problem unfolds varies according to the specifics of each situation. Growing debt levels and increasing wage disparity are common symptoms before collapse. Governments become vulnerable to losses in war and to being overthrown from within. Epidemics tend to spread easily because high wage disparity leads to poor nutrition for many low-wage workers. Dr. Joseph Tainter, in his book, “The Collapse of Complex Societies,” describes the situation as the loss of complexity, as a society no longer has the ability to support some of the programs it previously was able to support.

At the same time the existing economy is failing, the beginnings of new economies can be expected to start. In some sense, economies “evolve,” just as plants and animals evolve. New economies will eventually replace existing ones. These changes are a necessary part of evolution, caused by the physics of the biosphere.

In physics terms, economies are dissipative structures, just as plants, animals, and hurricanes are dissipative structures. All dissipative structures require energy supplies of some type(s) to grow and remain away from a dead state. These structures do not “live” endlessly. Instead, they come to an end and are often replaced by new, slightly different, dissipative structures.

[2] Over the next 10 years, the general direction of the economy will be toward contraction, rather than growth.

There are many indications that the world economy is hitting a turning point because of rising population and diminishing returns with respect to resource extraction. For example:

[a] Debt levels are very high in the US and other countries. A rising debt level can temporarily be used to pull an economy forward without adequate energy supplies because it indirectly gives workers and businesses more spendable income. This income can be used to work around the lack of inexpensive energy products of the preferred types in a variety of different ways:

  • It can allow consumers to afford a higher price for existing energy products, if the additional funds get back to customers as higher incomes or lower taxes.
  • It can allow businesses to find more efficient ways of using resources, such as ramping up international trade or building more efficient vehicles.
  • It can allow the development of new energy products, such as nuclear power generation and electricity from wind and solar.

What we are finding now is that these new approaches tend to encounter bottlenecks of their own. For example, oil supply is sufficiently constrained that the current level of international trade no longer seems to be feasible. Also, wind and solar don’t directly replace oil; electricity based on wind turbines and solar panels can lead to blackouts. Furthermore, diminishing returns with respect to oil and other resources tends to get worse over time, leading to a need for ever more workarounds.

If at some point, extraction becomes more constrained and workarounds fail to provide adequate relief, added debt will lead to inflation rather than to hoped-for economic growth. Higher inflation is the issue that many advanced economies have been struggling with recently. This is an indication that the world has hit limits to growth.

[b] Because of low oil prices, companies are deciding to cut back new investments in extracting oil from shale, and likely elsewhere.

Line graph depicting the Brent Oil Price in 2024 US dollars from 1952 to 2024. The graph shows fluctuations in oil prices with significant peaks and troughs over the decades.
Figure 1. Brent equivalent oil prices, in 2024 US dollars, based on a combination of indications through 2023. Sources include historical oil prices in 2023$ from the 2024 Statistical Review of World Energy, published by the Energy Institute; the increase in average Brent spot price from 2023 to 2024, published by the US EIA; and the US Consumer Price Index for Urban consumers.

Figure 1 shows that oil prices rise and fall; they don’t rise endlessly. They rose after US oil production hit its first limits in 1970, but this was worked around by ramping up oil production elsewhere. Prices rose in the 2003 to 2008 period and then fell temporarily due to recession. They returned to a higher level in 2011 to 2013, but they have settled at a lower level since then.

One factor in the price decline since 2013 has been the production of US shale oil, adding to world oil supply. Another factor has been growing wage disparity, as workers from rich countries have indirectly begun to compete with workers from low-wage countries for many types of jobs. Low-wage workers cannot afford cars, motorcycles, or long-distance vacations, and this affordability issue is holding down oil demand.

US oil production from shale is in danger of collapsing during the next few years because prices are low, making new investment unprofitable for many producers. In fact, current prices for oil from shale are lower than shown on Figure 1, partly because US prices are a little lower than Brent, and partly because prices have fallen further in 2025. The recent price available for US WTI oil is only about $62 per barrel.

[c] World per capita coal production has fallen since 2014. A recent problem has been low prices.

Line graph depicting world coal production per capita over the years from 1965 to 2022, highlighting a recent decline labeled 'Coal problem'.
Figure 2. World coal production through 2023 based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

Transportation costs are a major factor in the delivered price of coal. The reduced production of coal is at least partly the result of coal mines near population centers getting mined out, and the high cost of transporting coal from more distant mines. Today’s coal prices do not seem to be high enough to accommodate the higher costs relating to diminishing returns.

[d] In theory, added debt could be used to prop up oil and coal prices, but debt levels are already very high.

Besides the problem with inflation, mentioned in point [a], there are problems with debt levels becoming unmanageably high.

Graph depicting the federal debt held by the public as a percentage of GDP from 1945 to projected values in 2055, highlighting key historical events such as World War II, the 2007-2009 financial crisis, and the coronavirus pandemic.
Figure 3. Figure from page 10 of The Long-Term Budget Outlook 2025 to 2055, published in March 2025 by the US Congressional Budget Office.

Figure 3 shows US government debt as a ratio to GDP. If we look at the period since 2008, there was an especially large increase in debt at the time of the 2007-2009 Financial Crisis and the 2020 Pandemic. The debt level has become so high that interest on the debt is likely to require tax revenue to rise endlessly. The underlying problem is needing to pay interest on the huge amount of outstanding debt.

Putting together [a], [b], [c], and [d], the world has a huge problem. As the world economy is currently organized, it is heavily dependent on both oil and coal. Oil is heavily used in agriculture and in transportation of all kinds (cars, trucks, trains, airplanes, and ships). Coal is especially used in steel and concrete making, and in metal refining. We don’t have direct replacements for coal and oil for these uses. Wind and solar are terribly deficient at their current state of development.

The laws of physics tell us that, given the world’s current infrastructure, a reduction in the availability of both crude oil and coal will lead to cutbacks in the production of many kinds of goods and services around the world. Thus, we should expect that GDP will contract, perhaps for a long period, until workarounds for our difficulties can be developed. Today’s wind turbines and solar panels cannot solve the problem for many reasons, one of which is that fact that production and transport of these devices is dependent upon coal and oil supplies.

Thus, without adequate oil and coal to meet the needs of the world’s growing population, the world economy is being forced to gradually contract.

[3] Overall living standards can be expected to fall rather than rise during the next decade.

A recent article in the Economist shows the following chart, based on an analysis by the United Nations:

Graph depicting the Human Development Index (HDI) showing trends from 2000 to 2024, with actual values in red and projected trends in blue.
Figure 4. Chart showing global average “Human Development Index,” as calculated by the United Nations, in the Economist.

Figure 4 shows the trend in the Human Development Index as level in 2023-24. I expect that the trend will gradually shift downward in 2024-2025 and beyond. Modern advances, such as the availability of potable water in homes and the availability of electricity 24 hours per day, will become increasingly less common.

The Economist article displaying Figure 4 notes that, so far, most of the drop in living standards has happened in the poorer countries of the world. These countries were hit harder by Covid restrictions than rich countries. For example, the drop in tourism had a greater impact on less advanced countries than on rich countries. Poor countries were also affected by a decline in export orders for luxury clothing.

Outside of poor countries, young people are already finding it difficult to find jobs that pay well. They are often burdened with debt relating to advanced education, making it difficult for them to have the same standard of living that their parents had. This trend is likely to start hitting older citizens, as well. Jobs will be available, but they won’t pay well. This problem will affect both young and old.

[4] Governments will be especially vulnerable to cutbacks.

History shows that when overshoot and collapse occur, governments are likely to experience severe difficulties, indirectly because many of their citizens are getting poorer. They require more government programs, but if wages tend to be low, the taxes they pay tend to be low, too.

Unfortunately, the kinds of cutbacks being undertaken by the Department of Government Efficiency (DOGE) are very much necessary to get payments by the US government down to a level that can be supported by taxes. Regardless of how successful the current DOGE program is, I expect a huge reduction in the number of individuals on the payroll of the US government, perhaps by 50% to 75%, in the next 10 years. I also expect major cutbacks in the funding for outside organizations, such as universities and the many organizations DOGE has targeted.

At some point, the US government will need to reduce or eliminate many types of benefit payments made now. One approach might be to try to send many kinds of programs, such as job loss protection, Medicaid, and Medicare, back to the states to handle. Of course, the states would also have difficulty paying for these benefits without huge tax increases.

[5] Ten years from now, universities and colleges will enroll far fewer students.

I expect that university enrollments will fall by as much as 75% over the next 10 years, partly because government funding for universities is expected to fall. With less funding, tuition and fees are likely to be even higher than they are today. At the same time, jobs for university graduates that pay well will become less available. These considerations will lead fewer students to enroll in four-year programs. Shorter, more targeted education teaching specific skills are likely to become more popular.

There will still be some high-paying jobs available, requiring university degrees. One such area may be in finding answers to our energy and resource problems. Such research will likely be carried out by a smaller number of researchers than are active today because some current areas of research will be discarded as having too little potential benefit relative to the cost involved. Any approach considered will need to succeed with, at most, a tiny amount of government funding.

High paying jobs may also be available to a few students who plan to be the “wheeler-dealers” of the world. Some of these wheeler-dealer types will want to be the ones founding companies. Others will want to run for public office. They may be able to succeed, as well. They may want to study specialized tracks to advance their career goals. Or they may want to choose institutions where they can make contacts with people who can help them in pursuing their career goals.

For most young people, I expect that four-year university degrees will increasingly be viewed as a waste of time and money.

[6] In a shrinking economy, debt defaults will become an increasing problem.

A growing economy is very helpful in allowing financial institutions to prosper. With growth, future earnings of businesses tend to be higher than past earnings. These higher earnings make it possible repay both the borrowed amount and the required interest. With growth, there is little need to lay off employees. Thus, the employees have a reasonable chance to repay mortgage loans and car loans according to agreed-upon terms.

If an economy is shrinking, overhead becomes an ever-larger share of total revenues. This makes profits harder to achieve and may make it necessary to lay off employees. These laid-off employees are more likely to default on their outstanding loans. As debt defaults rise, interest rates charged by lenders tend to rise to compensate for the greater default risk. The higher interest rates make debt repayment for future borrowers even more difficult.

All these issues are likely to lead to financial crises, as debt defaults become more common.

[7] As debt defaults rise, banks tend to fail. This can lead to hyperinflation or deflation.

In a shrinking economy, the big question when banks fail is, “Will governments bail out the banks?”

If governments bail out the failing banks, there is a tendency toward inflation because the bailouts increase the money supply available to citizens, but not the quantity of goods available for purchase. If enough banks fail, the tendency may be toward hyperinflation–way too much money available to purchase very few goods and services.

If no government bailouts are available, the tendency is toward deflation. Without bailouts, the problem is that fewer banks are available to lend to citizens and businesses. As a result, fewer people can afford to buy homes and vehicles using debt, and fewer businesses can take out loans to purchase needed supplies. These changes lead to less demand for finished goods. This change in demand can indirectly be expected to affect commodity prices, as well, including oil prices. With low prices, some suppliers may go out of business, making any supply problem worse.

Regardless of whether bailouts are attempted or not, on average, citizens can be expected to be getting poorer and poorer as time goes on. This occurs because with a shrinking economy, fewer goods and services will be made. Unless the population shrinks at the same rate, individual citizens will find themselves getting poorer and poorer.

[8] Expect more tariffs and more conflicts among countries.

Without enough oil for transportation, the quantity of imported goods must be cut back. A tariff is a good way of doing this. If one country starts raising tariffs, the temptation is for other countries to raise tariffs in return. Thus, the overall level of tariffs can be expected to rise in future years.

Without enough goods and services for everyone to maintain their current standard of living, there will be a definite tendency for more conflict to occur. However, I doubt that the result will be World War III. For one thing, the West seems to have inadequate ammunition to fight a full-scale conventional war. For another, the nuclear bombs that are available are valuable for providing fuel for our nuclear power plants. It makes no sense to use them in war.

[9] Expect an increasing share of empty shelves, as time goes on.

High tech goods are especially likely to disappear from shelves. Replacement parts for automobiles may also be difficult to find, especially before an aftermarket of locally manufactured parts appears.

[10] Interest rates are likely to stay at their current level or increase to a higher level.

The high level of borrowing by governments and others makes lenders reluctant to lend unless the interest rates are high. It should also be noted that current interest rates are not high relative to historical standards. The world has been spoiled in recent years with artificially low interest rates, made possible by Quantitative Easing and other manipulations.

[11] Clearly, this list is not exhaustive.

The world economy has gone through two major disruptions in recent years, one in 2008, and one in 2020. Very unusual changes such as these are quite possible again.

We don’t know how soon new economies will begin to evolve. Eric Chaisson, a physicist who has researched this issue, says that there is a tendency for ever more complex, energy-dense systems to evolve over time. This would suggest that an even more advanced economy may be possible in the future.

Note: I am also publishing this post on Substack. At this point, it is still sort of an experiment. Comments sometimes don’t post well on WordPress. This will give readers a different option for viewing posts. Using Substack, my posts may reach a new audience as well.

Some of you may receive an email about my Substack post. I put in some email addresses back in January 2024 when I put up a post on Substack earlier. Subscriptions will continue to be free both places. This is a direct link to my new post. https://gailtverberg.substack.com/p/economic-contraction-coming-right

Posted in Financial Implications, Introductory Post | Tagged , , , | 1,496 Comments

Brace for rapid changes in the economy; the world economy is reaching Limits to Growth

Posted on April 24, 2025 by Gail Tverberg

The world economy is at a major turning point, which is why we should brace for rapid changes in the economy. The world is moving from having enough goods and services to go around, to not having enough to go around. The dynamics of the economy are very different with not enough to go around. The hoped-for solution of higher prices doesn’t fix the situation; after a point, adding more buying-power mostly produces inflation. Other solutions are needed. The world economy is reaching what has been called “Limits to Growth.”

Figure 1. Chart made by Gail Tverberg showing the general pattern of secular cycles based on information given in the book Secular Cycles.

Economies throughout the ages have grown until their populations grew too large for resource availability. Researcher Peter Turchin has studied the general pattern of overshoot and collapse scenarios. The chart shown in Figure 1 is based on analyzing eight such cycles in the book Secular Cycles. The fossil fuel age began over 200 years ago, and it now seems to be reaching its end.

I doubt that President Trump thinks in terms such as secular cycles or overshoot and collapse. But tariffs and government cutbacks engineered by the Department of Government Efficiency (DOGE) seem like they might be approaches that will allow the world economy to contract in a way that could be helpful in keeping the collapse from taking place excessively fast.

In this post, I will try to explain the situation further. The issue we are facing is really a physics problem. Governments can print money, but they cannot print resources, especially energy resources. Our bodies are accustomed to having a certain amount of cooked foods in our diets. This, by itself, encourages population growth and eventual overshoot of the resource base. The self-organizing system somehow chooses its own downward path, not falling further or more quickly than necessary, under the Maximum Power Principle. This is what we are encountering now.

[1] In physics terms, the economy is a dissipative structure. Dissipative structures are self-organizing structures that require energy to grow but are only temporary.

The universe is filled with dissipative structures. Humans are dissipative structures, as are all plants and animals. Hurricanes are dissipative structures, as are star systems. Ecosystems are dissipative structures. All these things are temporary. Even economies are temporary, but no one tells us this detail.

The kind of energy that is required varies with the dissipative structure. Green plants use sunshine. Animals require plant or animal food. Humans have evolved to eat a mixture of cooked food and raw food. While a few raw food enthusiasts can get along using a blender to break up food into small particles, the general pattern is that our modern brains require the nourishment that cooked food can provide. Thus, humans need both food and some type of fuel for cooking at least a portion of the food. Fuel is also helpful for heating homes, ridding water of pathogens, and providing transportation.

Many things that we think of as man-made are dissipative structures. Governments are dissipative structures. Governments grow and often become too expensive for their citizens to support. The energy governments use is indirectly obtained through the use of taxes. A little of the energy used by the governments is purchased directly by governments to power their vehicles, and to heat and light their buildings.

Much more of the energy required by governments is indirectly consumed. For example, a portion of the taxes collected goes to pay public officials. This pay is used for things the public officials use, such as food, transportation, and housing. All three of these things require energy at many places in their “lives.”

  • Food – Sunshine to grow; oil to cultivate and transport it to the store; electricity for refrigeration; natural gas or electricity for cooking; human labor for many tasks.
  • Transportation – Fuel to make the metal and other materials used in making the vehicle; human labor to construct the vehicle; fuel to operate the vehicle.
  • Housing – Diesel to prepare the lot where the house is built; energy of many kinds to create and transport materials such as lumber and wiring; human energy to put the pieces together; electricity for lights after it is built; natural gas or electricity to heat the home after it is built.

In fact, every part of GDP requires energy. In some cases, this is “only” human energy. Of course, human energy requires food, some of it cooked (or broken into tiny pieces with an electric blender).

Businesses in general are dissipative structures. So are international organizations of any kind. Cities seem to be dissipative structures. Religious organizations are dissipative structures. Any organization that seems to grow, pretty much on its own, is a dissipative structure.

[2] If the energy sources needed by a dissipative structure become scarce, this can badly disrupt the dissipative structure.

Hurricanes that pass over warm water tend to maintain their strength, but if they go over land, they quickly dissipate. If an animal is deprived of food, it will become weak and eventually die. If a government is deprived of revenue (and the energy sources that this revenue indirectly buys), it will no longer be able to provide the services it has promised. It may default on its debt or collapse.

[3] Many dissipative structures seem to be programmed to eventually go downhill and collapse, even when plenty of energy seems to be available.

Obviously, running out of energy isn’t the only way a dissipative structure comes to an end. Most humans don’t starve to death. Instead, when humans get to be 70 or 80 or so years old, they lose some of their strength. They more easily succumb to illnesses. Other animals are similar. Tomato plants in our gardens seem to be more prone to infestation by pests after a month or two of bearing fruit.

[4] Even economies seem to be programmed to go downhill and collapse.

Economies have a problem with their populations becoming too large for available resources. For many years, it appears that added debt (money supply) can be used to temporarily work around a resource problem. For example, a dam purchased with debt may allow irrigation so more food can be produced for a given population.

The problem with this approach is that the benefits of added debt reach diminishing returns. At some point, an economy discovers that adding debt doesn’t add much energy supply; instead, it simply leads to inflation (and, indirectly, higher interest rates to compensate for this inflation). Also, for governments, the interest on debt becomes a greater and greater burden.

The US government seems to have reached the point of having too much debt. The US Congressional Budget Office (CBO) recently published this chart related to US debt:

Figure 2. Figure from page 10 of The Long-Term Budget Outlook 2025 to 2055, published in March 2025 by the CBO.

US taxes need to keep rising, as a percentage of GDP, just to repay US government debt with interest. This is a path that can lead to hyperinflation. This seems to be the underlying reason for DOGE and the tariffs.

Adding infrastructure such as roads, pipelines, and railroads can be helpful in the beginning. The additional infrastructure enables new businesses to be built that make use of this infrastructure. Initially, the tax revenue from new businesses makes it easy to repay the debt with interest.

But additional roads, pipelines, railroads and other infrastructure are not nearly as helpful. They may add capacity, but they don’t materially change the transportation options. The tax revenue added is less.

At some point, simply maintaining and replacing all the infrastructure becomes burdensome. Adding debt for the replacement of infrastructure becomes burdensome because the new replacement infrastructure adds no new functionality. It just maintains the old functionality. The interest on the debt must come from somewhere, but it is not built into the system the way it was when totally new infrastructure was built. Today’s approach is simply to increase the debt level and hope that the revenue will come from somewhere else.

A related issue is that old factories tend to be less productive than newly built ones that benefited from the latest advances. This allows new factories (perhaps in another part of the world) to make goods in a more cost-efficient way. An older factory is likely to lose out in price competition against a newer, more productive factory elsewhere.

[5] The analysis of Turchin and Nefedov in Secular Cycles suggests that economies often go through the pattern shown in Figure 1.

Economies discover a new resource. Perhaps they have conquered a new land, and they have eliminated the old inhabitants. Or they have cut down trees, allowing more area for farming. At a given level of technology (and fuel for the technology), a given area of arable land can support a particular number of inhabitants. If the population gets too high, the size of farms tends to fall too low to support the farmers and their families. This pattern happens if families allow multiple sons to each inherit a share of the family farm.

Alternatively (and more likely), if the population gets too high, the younger sons don’t inherit any farmland. They start working in services and or on crafts of various kinds. But these alternatives to farming generally don’t pay very well. The many workers with low wages become less able to pay taxes, creating a problem for government funding.

As the population rises, wages of these lower-paid workers become increasingly less adequate to cover the necessities of life. With inadequate nutrition, populations become more subject to epidemics.

According to Secular Cycles, as these problems arise, debt is increasingly used to work around the problems. Slow population growth and increasing debt are characteristics of the Stagflation period shown in Figure 1.

Eventually, economies fail. Governments can fail due to a lack of adequate tax revenue or by being overthrown by unhappy citizens. Alternatively, they may lose a war against another country with better weapons (made with energy supplies). All governments, as dissipative structures, can be expected to eventually fail, one way or another.

[6] The world economy now seems to be headed on a path similar to that shown in Figure 1.

The world economy now seems to be reaching the end of the age of fossil fuels. I believe that the world first entered the stagflation era in 1973, when oil prices first rose dramatically. At that time, it became clear that oil must be used more sparingly. To help economize on oil, smaller, more fuel-efficient cars began to be imported from Japan and Europe. In some places, oil was being burned to generate electricity; this electricity could sometimes be replaced by electricity from nuclear power plants.

In the 1980s, added debt became more important. Companies were told to use “leverage” to become more competitive with producers around the world. Instead of fearing credit, it should be embraced. Computers were increasingly used, and world trade was expanded. World trade very much facilitated the production of complex goods, such as automobiles and computers, because it allowed a very wide array of raw materials to be used in manufacturing.

Figure 3. World trade based on World Bank data. Amount shown are the average of (worldwide imports/world GDP) and (worldwide exports/world GDP). Amounts shown are through 2023.

Figure 3 suggests that world trade stalled in 2008. There has been a slight downward trend since that date. With tariffs, world trade will likely fall more quickly in the future.

Figure 4. Energy consumption per capita, separately, for oil, coal, and nuclear based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

One of the underlying problems facing the world economy is the fact that major types of energy supply have been falling relative to world population for a long time. The high points seem to have been in 2004-2007 for oil, in 2011 for coal, and in 2001 for nuclear (Figure 4).

Figure 5. World middle distillates consumption per capita, based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute. Middle distillates are diesel oil and jet fuel.

Middle distillates (diesel oil and jet fuel) are particularly important in world trade. Middle distillates are plentiful in heavy oil, such as that found in Russia, the oil sands of Canada, and Venezuela. Diesel is important for operating farm equipment, large trucks and ships, and construction equipment.

Middle distillates are in short supply because it is hard to get the price up high enough, for long enough, to compensate for the high cost of extraction, distillation, and transport. If the price of diesel rises much, the price of food tends to rise. Voters don’t like high food prices. This seems to be a major reason that both Russia’s oil exports and Venezuela’s oil exports are subject to sanctions.

Without an adequate supply of middle distillates, world trade needs to be scaled back. I believe that this shortfall is the physics reason underlying the push for increased tariffs. The fact that these tariffs are particularly high against China means that long distance transport across the Pacific Ocean will be scaled back. Shelves in US stores will increasingly lack goods made with Chinese inputs.

[7] Modeling of the overshoot and collapse problem has been done since the 1950s. A recent model suggests that world industrial output is likely to fall quickly, about now.

In 1957, US Navy Rear Admiral Hyman Rickover gave a speech explaining the importance of fossil fuels to the economy and to the military. He then explained that we could not expect fossil fuel extraction to last very long:

 It is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account.

Much modeling has been done since that time. Researchers at Massachusetts Institute of Technology did a series of analyses which they published in 1972 in the book, The Limits to Growth. The most recent update to this analysis shows the following summary exhibit.

Figure 6. Output of the recalibrated Limits to Growth model by Arjuna Nebel and others, published in 2023, with Gail Tverberg’s labels showing which lines are “Industrial Output” and which are “Population.” Source.

The 1972 model and its update both look at the world economy from an engineering point of view. The analyses ignore the roles of governments, debt, and many other things important to the economy. The original authors of the 1972 Limits to Growth analysis said that they didn’t have much confidence in the accuracy of their forecasts after the decline had begun because of the many omitted factors.

The disturbing thing from the 2023 analysis is that it shows industrial output dropping about now. This is what I would expect to happen if there is a big drop in world trade.

[8] The world economy is self-organizing. It doesn’t seem to depend on the actions of any one person or group.

The Universe keeps growing and expanding. Many people believe that the Universe spontaneously sprang out of nothing and began to grow. I believe that there was a Creator.

An intricate system of evolution is taking place, with new dissipative structures arising and old dissipative structures coming to an end. The dissipative structures that last are the ones best adapted to the Earth’s ever-changing environment at that time.

Somehow, the world economy (and other ecosystems) maximize the total output of each part of the system, under the Maximum Power Principle. This isn’t dependent on any one system being more efficient or working better than another. Instead, the world economy tends to maximize the total output of the system, given the energy supplies (and other resources, such as water) available. Thus, the world output of goods and services is unlikely to fall so catastrophically that it quickly wipes out most of the world’s human population. For example, if industrial output is limited, it may be concentrated especially on replacement parts for current machinery and on machines needed for food production.

The intricate nature of evolution and the many dissipative structures formed, together with the Maximum Power Principle, leads me to believe that the Creator is still active today.

It seems to me that the self-organizing economy utilizes whatever leaders are available. They don’t need to have good motives for their actions. It isn’t that Donald Trump is a better leader than others, or that his ideas, as promulgated, will take a hold. The system works through many leaders of various political parties. Each leader is somewhat replaceable by other leaders. The underlying physics of the system is what leads to the changes that take place.

Religions seem all to be created by the same Creator. They seem to have many functions, including binding groups together, teaching “best practices” regarding getting along within a group here on earth, and (when resources are short), fighting against other religious groups. Religious organizations seem to be part of the self-organizing economy, as well.

[9] What I see ahead.

(a) Recession seems likely, starting out as being barely perceptible, but getting worse and worse over time.

(b) World output of physical goods and services will begin to decline almost immediately. In particular, products manufactured in the US using inputs from China will become difficult to obtain, as will goods imported into the US from China.

(c) I expect that commodity prices will fall. Deflation seems more likely than inflation. If inflation does take place, I expect that it will take the form of hyperinflation, with central banks issuing huge amounts of money, but there not being very many goods and services to purchase with this money.

(d) I expect that many banks, insurance companies, and pension plans will fail. I expect that governments will not be able to bail them all out. If governments do try to bail out all these failing institutions, the result is likely to be hyperinflation, with not much to buy.

(e) Many governments have plans for digital currencies to replace the currencies we have today. I am doubtful that these plans will work. For one thing, intermittent electricity is likely to become an increasing problem. For another, government organizations, such as the European Union, the World Trade Organization, the World Bank, and the United Nations are likely to start falling apart. Even the United States is likely to become less “united,” or it may comprise fewer states.

(f) I do not see gold as being very helpful for the long term. It seems like small silver coins will be much more tradable in the future. What we will really need is food, water, and shelter. I expect that these will go mostly to workers producing these essentials, rather than to hangers-on to the system.

(g) A few businesses may do well. Figuring out how to produce food in quantity, locally, may be helpful. Converting unused buildings to shelters for poor people may also be helpful. Private “protection” services may also do well.

(h) The stock market provided great returns for US investors in the 2008 to 2024 period, but this cannot be expected to continue. A likely result is that returns will fall very low or will turn negative.

(i) Borrowing is likely to remain challenging, or get worse. Lenders will increasingly recognize the default risk. Some lenders may go out of business.

(j) Over a period of years, trade will change to be more local. The US will lose its status as the holder of the reserve currency. It will no longer try to be the policeman of the world.

[10] There are a lot of things we really don’t know.

The Creator may be creating a religious ending that we are not aware of. In fact, such an ending could come very soon.

Otherwise, dissipative structures are very often replaced by other dissipative structures. New economies may gradually grow up in different parts of the world. Perhaps the new economies will figure out new energy sources that we are not aware of, or make better use of declining energy types. According to Physicist Eric Chaisson, the long-term trend is toward more complex, energy-intense dissipative structures being formed.

Figure 7. Image similar to ones shown in Eric Chaisson’s 2001 book, Cosmic Evolution: The Rise of Complexity in Nature.

“Societies” in Figure 7 seem to be similar to today’s economy.

Posted in Financial Implications | Tagged , , , | 1,643 Comments

Advanced Economies Are Being Pushed Toward Financial Collapse

Posted on March 31, 2025 by Gail Tverberg

I have said in recent posts that the world economy is hitting resource limits of many kinds. These limits include oil, coal, and other sources of energy, including uranium, used as a fuel for nuclear power generation. Because of these limits, the world economy is being forced to shrink back. In my opinion, the direction it is headed in is toward smaller, mostly less-advanced, more independent, economies. This change is also likely to lead to various types of financial collapse for many of today’s Advanced Economies.

Per-capita consumption of these early used energy sources has shrunk since peaking in 2007.

Figure 1. World per-capita consumption of oil, coal, electricity from nuclear power plants, based on data from the 2024 Statistical Review of World Energy, published by the Energy Institute.

Most of us remember the Great Recession of 2007 to 2009. With a declining supply of what used to be inexpensive energy resources, many economies have done poorly. Many of the wealthier countries have papered over their problems with an increasing amount of debt, but the limits to this added-debt approach are now being hit. It is the debt problem that leads to financial collapse.

In this post, I will elaborate on these ideas.

[1] Countries that are today’s Advanced Economies (members of the Organization for Economic Cooperation and Development (OECD)) are likely to fare poorly in this coming contraction.

The Advanced Economies include the US, most of Europe, Japan, Australia, and a few other countries. Their per-capita consumption of oil, coal and nuclear electricity resources has been shrinking significantly since about 2005. The year 2005 was approximately the peak of “conventional” oil supplies. More oil has become available since this date, but this oil is generally more expensive to extract.

Figure 2. Energy consumption per capita for the combination of oil, coal, and electricity from uranium, separately for the Advanced Economies and the Other than Advanced Economies, based on data from the 2024 Statistical Review of World Energy, published by the Energy Institute.

[2] Energy consumption for the Other than Advanced Economies is hitting limits, too.

The Other than Advanced Economies were able to grow in their per-capita use of these three types of fuels between 2001 and about 2013, but since then, their per-capita quantity of these fuels has leveled off. The big impetus for growth was China joining the World Trade Organization in 2001. World demand for inexpensive finished goods empowered China to start extracting coal and other minerals in quantity. But coal mines deplete, just as oil fields deplete, leading to the flat per-capita availability of energy supply for the Other than Advanced Economies since about 2013.

[3] With these changing patterns for the two groups, one potential problem is conflict.

The Other than Advanced Economies have figured out that they are creating a huge share of the world’s goods, but their per-capita use of energy is much lower than that of the Advanced Economies. Why should the Advanced Economies get so much of the finished products available from the world’s resources, when most of the work (and the pollution) has taken place in the Other than Advanced Economies? I would expect this type of thinking to take place in China, Russia, India, Iran and other countries in this group. These countries believe that they could get along perfectly well without the Advanced Economies and their high usage of energy.

[4] With these changing patterns, a second potential problem is financial collapse, especially for the Advanced Economies.

Each economy can be encouraged to grow in two different ways: (1) Through more debt, indirectly adding to more “demand” for finished goods, or (2) Through added supply of inexpensive energy products. Adding debt to pull the economy forward seems to work well if there is not a problem with hitting resource extraction limits. Once an economy starts hitting resource extraction limits, however, the added debt partly adds inflation, rather than finished goods and services, to the output mix. Thus, the debt approach no longer works well.

The world as a whole is now hitting resource extraction limits. Not only do individual citizens become unhappy with the higher inflation level, but investors demand higher interest rates for lending. This higher interest cost becomes a huge problem for the Advanced Economies that already have very high debt levels.

A recently issued report by the US Congressional Budget Office (CBO) shows what is happening in the US.

Figure 3. Figure from page 10 of The Long-Term Budget Outlook 2025 to 2055, published in March 2025 by the CBO.

In a sense, the reports that the CBO publishes are “Best Case” scenarios. The reports are optimistic in two different ways: (1) They assume that no more added-debt bail-out programs will be needed, as were used several times in recent years, and (2) They assume that inflation will quickly fall to 2%, so that interest rates can fall quickly and stay lower from now on.

Even with these assumptions, the results are disturbing. Note that on Figure 3 (in both charts shown), the especially significant increase in debt starts around 2008. This is when the US, and likely most of the other Advanced Economies, started to hide their energy problems by using more debt stimulus.

Even when the most optimistic possible estimate of the future “primary deficit” is made, and when the most optimistic possible forecast of future “net interest” outlays is made, there is still a huge build-up of debt. The implication is that very large tax increases will be needed to maintain current programs. Even with these huge tax increases, the problem will get worse and worse, year after year. There is a need to cut back on existing government programs to avoid adding the need to pay even more interest on debt in the future.

[5] If an economy is forced to shrink back, debts of all kinds become more difficult to repay with interest.

Any economy needs to grow, in order to repay debt with interest. A growing economy has a surplus with which to pay interest.

Figure 4. Repaying debt is easy in a growing economy because the promises that are made can be repaid later, when the economy is larger in terms of goods and services produced. Obviously, repaying a loan in a shrinking economy becomes a problem. Chart made by Gail Tverberg in 2012.

On the other hand, a shrinking economy tends to lead to major debt defaults. Leveraged debt is especially likely to cause problems.

The CBO is now forecasting that the US government could run into debt limit problems as soon as July 2025. Perhaps the US government will find ways around the current apparent shortfall, but the issue of the government not being able to meet its debt obligations without major tax increases or reductions in programs still looms in the background.

I expect that within the next three months, we will start to see loan defaults of some type, such as defaults by hedge funds. Governments will want to step in, but they will be limited by their own financial problems. Defaults on many other kinds of debts are likely to start taking place, as well. If inflation rates rise, and interest rates rise with them, defaults on many kinds of debt could start taking place.

[6] It seems likely that nearly all the Advanced Economies will have similar problems.

The Advanced Economies have tended to offer their citizens many benefits, including pensions for the elderly and some type of healthcare coverage. Many of them have financially supported what they are hoping will be energy types that will take the place of the energy types they seem to be losing.

If an economic system is not growing as fast as it has in the past (because of low energy consumption growth, and lack of debt stimulus), or is actually shrinking, these economies are likely to face a choice between either cutting back on promised programs or raising taxes. Governments will find themselves needing to cut back on programs that they have promised to their citizens, or, alternatively, they will need to default on their debt.

[7] Adding to the problems of the Advanced Economies will be the issue of goods and services needing to be made closer to home.

Without enough oil for all purposes, a logical way to cut back is to use less oil for international shipping. This would tend to reverse the trend toward globalization that started many years ago.

Figure 4 shows that the US started shifting heavy industry to other countries with better supplies of oil as early as 1974. The Kyoto Protocol of 1997 gave another reason (or excuse?) for shifting heavy industry to countries with less expensive, more abundant, energy supplies.

Figure 4. US industrial energy consumption per capita through 2023, based on data of the EIA.

I expect that in the next few years, the Advanced Economies are likely to need to move industrial production back closer to home, to save on limited world oil supplies. This will be difficult to do, especially in a timeframe of less than 20 to 30 years. New mines will be needed for minerals, but the lead times on these are very long, typically 13 years or more. New processing plants for these minerals will likely be needed as well, potentially adding to the lead time. Whole new, short supply chains will be required. Finally, goods and services manufactured closer to home will need to be transported to citizens, sometimes in new ways.

Many of today’s manufactured goods require imports of minerals from China or Russia. To the extent that specific minerals from these countries can no longer be imported, additional closer sources will be needed. This will further add to manufacturing difficulties.

[8] It will not be surprising if governments, or parts of governments, collapse.

History indicates that when civilizations reach resource limits, governments tend to fail. A recent example of this was the collapse of the central government of the Soviet Union in 1991, after an extended period of low oil prices. The Soviet Union was a major exporter of oil, and the low oil prices (plus other internal problems) led to the inability to repay promised debt. The separate republics within the Soviet Union remained, so the people were not left completely without a government. I expect something similar may happen elsewhere in the future.

[9] History suggests that even in a financial collapse, the entire economy will not fall apart, all at once.

Incremental changes are likely to take place. Governments are likely to try to make cutbacks. Financial investments are likely to do especially poorly in the next several years, and high-paying jobs seem likely to disproportionately disappear. The economy will no longer be able support as many specialists as are working today, in many industries.

The electricity supply likely won’t fall off all at once; instead, electricity will become increasingly intermittent, with some areas having more outages than others. Diesel and gasoline will perhaps be available, at least part of the time.

New car sales in the Advanced Economies are likely to fall very soon, leaving citizens mostly dealing with used cars, and the difficulty of finding appropriate replacement parts for used cars. The problem of “empty shelves” in stores is likely to return and get worse.

There will likely be an increasing divide between the relative handful of citizens who are doing well, and the many others. In fact, we are already seeing a trend in this direction in the US. But many of today’s big spenders are likely to be knocked down in any coming economic contraction.

Figure 5. Chart showing spending by income bracket in Bloomberg article, The Richest Americans Kept the Economy Booming. What Happens When They Stop Spending?

[10] Perhaps the good news in this contraction is that major international wars may not be a problem.

Instead, civil wars and local skirmishes may be the order of the day. There may not be resources available to fight long-distance wars, even if many citizens might favor this approach. Wars give an excuse for more debt and more income for soldiers, so they are always popular in troubled economic times. But a lack of materials for making military supplies (including insufficient sources of antimony) and the inability to raise debt financing may impede efforts.

[11] What should we expect in the future?

The US and many other Advanced Economies are likely heading into a worse and longer lasting financial crisis than the 2008 crisis, starting as soon as this summer. The problem will likely not start out as a full financial collapse. Instead, various leveraged borrowers will encounter difficulties. Gradually, the finances and very structures of many government organizations are likely to be threatened. Some government structures that we currently depend upon may disappear.

How the long term will unfold is unclear. We know that ecosystems often operate in wide cycles, and that economic systems are a kind of ecosystem. This relationship suggests the possibility of a later renewal.

Furthermore, Eric Chaisson, in Cosmic Evolution: The Rise of Complexity in Nature, points out that there is a very long term trend in the universe toward more complex and more energy-dense structures. His analysis seems to suggest the possibility of evolution toward a different kind of more complex, energy-dense economy ahead.

In this ever-changing world, there may very well be opportunities for personal success. It will likely be a time of major readjustment, however. Perhaps quite a few people will be able to do well if they can keep their eyes open for opportunities to prosper, making the best possible use (or reuse) of resources that are available.

Appendix: Background on Oil, Coal and Electricity from Uranium

Appendix: Figure 1. Energy consumption per capita, separately, for oil, coal, and nuclear based on data of the 2024 Statistical Review of World Energy, published by the Energy Institute.

Oil Background

Oil was at one time a very inexpensive fuel, even when adjusted for inflation to 2023’s price level.

Appendix: Figure 2. Brent equivalent world oil prices, adjusted to 2023 price level, based on data from the 2024 Statistical Review of World Energy, published by the Energy Institute.

With the low prices that were available before 1970, oil could be used widely. It could be used to create electricity, and roads could be paved. Many people could afford cars who could not afford them previously.

In 1973, oil prices soared (Appendix: Exhibit 2). Appendix: Figure 3 shows that between 1981 and 2021, falling interest rates helped to make higher oil prices more tolerable. More debt could be added, and with lower interest rates, monthly payments could stay low.

Appendix: Figure 3. Three-month and ten-year US Treasury interest rates, in chart by the Federal Reserve of St. Louis.

Appendix: Exhibit 2 also shows that a big part of the problem since 2021 is that while debt levels are now high, interest rates will not stay down. This means that the cost of drilling new wells is now higher, and the general cost of investment in the economy is higher.

Appendix: Exhibit 1, indicates that, since 1991, the greatest per-capita quantity of oil that customers were able to afford occurred in the 2004 to 2007 period. This was a time in which home mortgage debt stimulus was used to keep the US economy growing; it was the time of Alan Greenspan and the NINJA (No Income, No Jobs, No Assets) home loans. The resulting sub-prime US housing bubble is reported to have lasted from 2003 to 2007. This sub-prime debt bubble is at least part of what led to the 2008 financial crisis.

The high US demand for oil as a result of the home mortgage debt bubble of 2003 to 2007 helped world oil prices to rise and consumption to rise. More recently, per-capita world oil consumption has been down, especially in 2020. Oil supply has not regained the 2004 to 2007 level, or even the 2018 level, in the most recent estimates.

Oil extraction has traditionally been a huge source of tax dollars, especially for oil exporters, even when oil was sold at relatively low prices. Anything that replaces oil needs to fill this role as well, because the economy needs energy (and taxes from energy) to operate. This tax revenue is a way to share what is sometimes called the “surplus energy” of the oil with the government of a country. At currently high extraction costs, this surplus energy benefit is largely disappearing.

Coal Background

Appendix: Figure 1 shows that the fuel in second largest supply has been coal. Its supply grew greatly after 2001, when China joined the World Trade Organization. This growth in coal supply did not last long because coal that was cheapest-to-extract and closest-to-markets quickly depleted. Appendix: Figure 1 shows the peak in per capita coal supply was hit in 2011. 

Coal helped start the industrial revolution. By 1700, it grew to be the dominant fuel in England. Coal gradually replaced firewood and was used in many new ways.

Appendix: Figure 4. Annual energy consumption per person (megajoules) in England and Wales 1561-70 to 1850-9 and in Italy 1861-70. Figure by Wrigley

Appendix: Figure 5 shows the ways coal has recently been used. It is used directly in industry, besides being burned for electricity.

Appendix: Figure 5. Chart showing “first users” of coal, based on an IEA analysis.

Nuclear Background

Appendix: Figure 1 shows that the peak in per-capita nuclear energy production occurred in 2001. But at one time there had been great hope for nuclear power.

It was known as early as the 1950s that fossil fuel supplies were likely to face depletion issues as soon as 2050. Physicist M. King Hubbert was of the belief that electricity from uranium would be too cheap to meter. He also believed that the quantity of electricity produced could be very high. Neither of these things has come to pass.

Appendix: Figure 6. Figure by M. King Hubbert in his paper, Nuclear Energy and the Fossil Fuels

Early nuclear reactors were built to avoid problems that engineers could see needed to be avoided. This approach led to accidents: Three Mile Island (1979), Chernobyl (1986), and Fukushima (2011). It became clear that design upgrades were needed, raising costs and lengthening timelines for building reactors.

In theory, there is quite a bit of uranium to be extracted, but getting the price up high enough, for long enough, has been a problem. The World Nuclear Association shows this chart of production through 2022. Production in recent years has been lower than consumption.

Appendix: Figure 7. World uranium production and reactor requirements (metric tons of uranium) in a chart by the World Nuclear Association.

Fortunately, there has been a supply of nuclear warheads which could be down blended to provide uranium for nuclear reactors. This supply of nuclear warheads is now close to being exhausted. If nuclear power is to be expanded, more uranium will be needed.

Appendix: Figure 8. Chart from ArmsControl.org showing estimated global nuclear warhead inventories, 1945 to 2023.

Other details have proven problematic as well. In theory, the spent fuel can be reprocessed and used as fuel for reactors, but in practice, this process seems to be costly and time-consuming to set up.

Another issue is the high cost of building new nuclear reactors, and the need for debt to fund this cost. Clearly, the higher the interest rate, the higher the cost. Not many organizations can fund these high costs, in advance of actually getting electricity out and delivered to customers.

In general, to keep costs low for customers, the sale of electricity is priced at the margin. In many places, electricity from wind turbines and solar panels is given “priority.” As a result, wholesale electricity prices tend to be too low for electricity from nuclear power plants, driving them out of business. The price level is certainly not high enough to pay high taxes to governments. Such a margin would be needed if nuclear were to have a chance of truly replacing the benefits we have had in the past from inexpensive-to-produce oil.

Posted in Financial Implications, News Related Post, peak oil | Tagged , , , , | 1,987 Comments