It’s possible that I shall make an ass of myself. But in that case one can always get out of it with a little dialectic. I have, of course, so worded my proposition as to be right either way (K.Marx, Letter to F.Engels on the Indian Mutiny)
Saturday, May 16, 2026
The Hormuz Choke Point And The Twilight Of Petroleum – OpEd
After British troops had beaten German Field Marshal Erwin Rommel’s tank forces at the Second Battle of El Alamein in Egypt on November 4, 1942, British Prime Minister Winston Churchill declared, “This is not the end. It is not even the beginning of the end. But it is perhaps the end of the beginning.”
The same might now be said about humanity’s struggle to defeat the dire threat of global climate change caused by our never-ending burning of fossil fuels. The illegal war of aggression on Iran, abruptly launched on February 28, 2026, by the governments of Israeli Prime Minister Benjamin Netanyahu and President Donald Trump, has indeed provoked a global energy crisis of a unique kind. The Iranians, of course, responded by imposing a blockade on the Strait of Hormuz that promptly removed about 11% to 13% of all petroleum from the world market, day after day, week after week, setting off a cascade of steeply rising prices for diesel fuel, gasoline, and natural gas.
Donald Trump’s brilliant idea of joining the blockade of that Strait should be considered the equivalent of coming to the aid of a strangulation victim by pressing a pillow over his or her face. The shortages hit first in Asia (particularly reliant on fuel flows from the Strait of Hormuz) and Africa and then in Europe. The German air carrier Lufthansa only recently cut 20,000 summer flights for fear of fuel shortages (and it will undoubtedly prove all too typical). Nor will the U.S., despite having its own supplies of oil, escape such negative developments. While there have been oil price crunches before, as in the 1970s and 1980s, this one is different. It’s a watershed moment globally, heralding the Ragnarök — the Norse “twilight of the gods” — of petroleum.
Forced to Run on One Engine
While American drivers have been complaining this spring about high prices at the pump, in the Netherlands and Denmark consumers are already paying the stunning equivalent of around $10 a gallon. In Asia, where reliance on petroleum that travels through the Strait of Hormuz is enormous, the situation is far worse, since there are already distinct shortages of fuel of a staggering and still growing kind. Philippines President Ferdinand “Bongbong” Marcos, Jr., recently declared a national energy emergency, as his country had only a little over a month’s worth of petroleum left. Hundreds of gas stations, nearly 3% of the country’s total, announced temporary closures, resulting in long lines at those that remained open.
South Korea, which unwisely dragged its feet when it came to turning to green energy, is now scrambling to find just three months’ supply of petroleum from non-Hormuz sources, but the world’s 10th-largest economy faces a potential economic cataclysm. The government has already restricted parking for commuters. The rise in gasoline costs has led many consumers to simply stay home if they can, spurring a buying spree of novels and video games. South Korean President Lee Jae Myung, a human rights lawyer, implicitly blamed Israel’s blatant disregard for International Humanitarian Law for the calamity, engaging in a days-long internet flame war with Tel Aviv in early April.
In Bangladesh, the state-owned Eastern Refinery has been forced to close due to a lack of crude oil to process. Meanwhile, the government has allowed gasoline and diesel prices to rise by 11% to 15%, putting pressure on the costs of transportation, agricultural production, and consumer items, while creating endless lines for what gasoline remains. With boat operators, ferries, and fishing boats unable to secure enough diesel fuel for their motors, a whole range of livelihoods are being hurt. As Al Jazeera reported, Bangladeshi ferry operator Abir Hussain typically offered this complaint: “We are struggling to maintain our regular schedule. We are forced to run on just one engine to conserve diesel, due to the fuel shortages.”
Heavily dependent on fossil gas for its electricity plants, Bangladesh has already suffered widespread outages, harming factories and schools — and, of course, even if the Strait of Hormuz were to reopen soon, the pain throughout Asia is likely to be long-lasting.
Stagflation
Oil price crises are hardly new. Because of a boycott of Europe and the United States by Arab oil producers during the 1973 Arab-Israeli War, and the rising power of the Organization of Petroleum-Exporting Countries (OPEC) cartel, the price of petroleum actually quadrupled between 1970 and 1980. That energy crisis produced economic malaise in the United States, where the economy became afflicted with “stagflation” — both stagnation and inflation, two phenomena not usually found together.
So much capital flowed to the oil states of the Persian Gulf then, particularly Saudi Arabia, Kuwait, and Iran, that President Richard Nixon and Secretary of State Henry Kissinger schemed to avoid deflation in the U.S. by pressuring those countries to buy enormous amounts of American military equipment. Over the decades, that oil-arms nexus would drive the United States toward ever more ruinous conflicts in the Gulf region, since arms manufacturers and oil companies, two of the more influential corporate sectors in American politics, had a motive for lobbying repeatedly to get Washington to intervene there. And of course, their behind-the-scenes pressure to continue the country’s forever wars in that region would be bolstered by the Israel Lobby.
The Islamic Revolution in Iran in 1978-1979, the Iran-Iraq War of 1980-1988, the Gulf War of 1990-1991, and the Russian invasion of Ukraine in 2022 were all further shocks to the energy system. The major industrialized countries responded to such challenges by increasing their fuel efficiency, while switching to nuclear power, coal, and natural gas for ever more of their electricity and heating. In the U.S., in part because of government regulation, the average passenger car went from a fuel efficiency of 13.5 miles per gallon in 1975 to 27.5 miles per gallon by 1985, while global per capita use of petroleum declined after the 1970s oil shock and has never recovered.
The Great Hormuz Fuel Crisis
The Great Hormuz Fuel Crisis of 2026 has the potential to permanently reduce petroleum demand far more radically. The deadlock in the Strait of Hormuz has all the hallmarks of a chronic ailment. After all, Israel and Iran have struck each other four times now — in April and then October 2024, in the 12-day war of June 2025 (when President Trump joined in), and again this spring. None of those four military actions successfully established Iranian deterrence, leaving Tehran eternally vulnerable to further Israeli and U.S. strikes.
And yet Israeli Prime Minister Netanyahu’s determination to destroy Iran’s industrial base has also failed so far. Of course, that doesn’t mean the Israeli elite won’t try again once their country and the U.S. have built back up their depleted stores of interceptors and so become more confident that Tel Aviv will be able to withstand further Iranian ballistic missile and drone barrages. In addition, Iran’s new claim that, from here on in, it will have the right to charge tolls for passage through the Strait of Hormuz, though it may have some support in international law, is unacceptable to the U.S., the Arab Gulf states, and Israel, and so forms an irritant likely to lead to further conflict.
In short, Israel and the United States have destabilized the Persian Gulf and global oil and natural gas supplies for the foreseeable future.
How different today’s crisis is from the Middle Eastern one set off by Washington’s Operation Desert Storm, aimed at expelling the Iraqi military from Kuwait in 1991. Since the strength of Baathist Iraq then lay in its armored forces, the U.S. and its allies could use their own armor and air power to bottle them up inside Iraq and deny that country’s military the ability to further destabilize the Persian Gulf region.
In contrast, since then Iran has put much of its military energy into ballistic missile and drone production, weapons that, no matter what the U.S. and Israel do, can continue to strike sites across the Middle East. While petroleum prices doubled during the Iraqi occupation of Kuwait in 1990, they quickly fell once it was over. Subsequent losses from sanctions on Iraq and oil fires in Kuwait were offset by increases in OPEC production, especially in Saudi Arabia. That country is, in fact, one of the few major swing producers left in the world. The U.S. and Russia still produce a great deal of crude oil, but they use most of it themselves. On the other hand, because of its vast oil fields and small population, Saudi Arabia can vary its production, lowering it when the price falls too low for its liking and increasing it substantially during a crisis.
Phantasmagoric Assertions
At the moment, however, the Saudis can’t substantially offset the shortfall in crude oil through Hormuz because it’s caught up in the crisis itself and its pipeline to the Red Sea has limited extra capacity; nor, despite President Trump’s phantasmagoric assertions, can the U.S., since it’s not a net exporter but a net consumer of crude oil. It is, however, a net exporter of liquid hydrocarbons, including hydrocarbon gas liquids (HGLs), primarily propane, which make up about 25% of total U.S. gross “petroleum” exports. Propane, however, is mainly used for heating buildings and you can’t fill up on HGLs at the pump. Since gasoline and diesel prices are set by the world market, the U.S. production of crude will not keep American prices at the pump from rising.
The oil supply for vehicles is relatively inelastic. And yet a world that used roughly 104 million barrels a day of petroleum in 2025 has been limping along this spring with as little as 92 million barrels a day, while chronic shortages loom, even once the Strait of Hormuz is reopened, since numerous major refineries in the region have been badly damaged. Demand also will remain relatively inelastic as long as owners locked into vehicles with internal combustion engines have to keep on buying gasoline and diesel fuel (no matter how high the prices go) to get to work, ensuring that those prices will remain elevated until the supply increases substantially.
The Hormuz crisis, however, differs from past oil shocks in significant ways. As a start, it’s happening at a time when scientists are discovering ever more unsettling consequences from fossil-fuel-caused climate change — most recently, a potentially calamitous slowdown in or possibly even future collapse of the crucial Atlantic Ocean current system by midcentury, which could have a devastating impact on the planet. As a result, wise governments have an increasing motivation to enact policies encouraging the electrification of public transport of every sort and so much else as well.
In addition, the recent conflict in the Strait of Hormuz signals an ongoing geopolitical volatility in the heart of oil country that may not subside, even though the latest oil war has arrived at a time when there is an increasingly robust alternative to gas-powered transportation in the form of electric vehicles (EVs), to which consumers are already switching in striking numbers. Countries are also turning ever more to wind and solar power, no small thing since the crunch in the Strait also affects the global distribution of natural gas from Qatar. The five countries in the European Union with the most green energy are set to savenearly $10 billion more in costs than fossil-heavy EU countries.
The Elephant in the Showroom
In the United Kingdom, EV sales spiked a record 24% in March over the same month last year. Moreover, there was a potentially game-changing turning point there, as the average cost of an electric vehicle for the first time fell below that of a similar gasoline-powered car. Meanwhile, renewable energy generation in England also swelled strikingly.
Asia, however, was the place that saw the most dramatic changes. Vietnam now makes its own electric car, the Vinfast, and its sales skyrocketed by 127% in March. Some 40% of new vehicle sales there last year were already electric, a percentage that is expected to rise rapidly in the wake of the Strait of Hormuz disaster. Vietnamese schoolteacher Dao Thi Hue caught the mood of the moment while visiting a Vinfast dealership by saying, “Driving an EV is so much better than driving a petroleum vehicle, in terms of costs and also in terms of saving fuel, queuing to fill up.”
Of course, the elephant in the global EV showroom is China. In 2024, it produced more than 12 million electric, hybrid, and fuel-cell vehicles (also known as “New Energy Vehicles”). That figure amounts to 70% of global production and EVs accounted for 53% of new car registrations in China last year. Moreover, China already has the ability to produce 20 million EVs annually, so it is only producing at 65% capacity. And the rush to buy electric vehicles isn’t just focused on passenger vehicles but also on heavy trucks.
Although domestic sales in China faced some headwinds because government incentives for such purchases lapsed late last year, March sales of 1.25 million New Energy Vehicles there were up slightly from the previous year and recent sales were up 67% from this February’s. The big news, however, is that Chinese EV growth was driven primarily by exports, a record 371,000 units in March, a 130% increase over the same month in 2025. Chinese lithium battery exports were also up in the first quarter by 50.1%, a figure that is only expected to grow as the effects of the Hormuz blockade tear through the world economy. Overall, China’s Greentech exports are surging. Periodic Shocks
Count on this: ever more consumers are likely to purchase electric vehicles globally, since they’re immune to the periodic price shocks caused by Persian Gulf instability. Moreover, their sticker prices continue to fall. New discoveries of lithium resources and new, less expensive batteries also promise to bring their prices down even further. Moreover, China’s Contemporary Amperex Technology Company (or CATL), a giant battery manufacturer, has just announced that it has developed a new battery that will enable an electric vehicle to travel 932 miles on a single charge (which, by the way, would only take six and a half minutes to complete).
These are potentially internal-combustion-engine-killing developments. Governments of countries lacking significant oil resources like India are already committing themselves to vast build-outs of charging stations and creating ever more incentives to buy EVs and phase out gas-driven vehicles. Because the Hormuz crisis is hitting Asia (with its vast population of 4.8 billion people) hardest, the new and somewhat frantic commitment by so many of its governments and its consumers to the electrification of transport will have the effect of further dropping prices globally for electric batteries and other technology and so will be pivotal in the fight against climate change.
In short, count on one thing: however devastating the immediate effects of the disaster in the Strait of Hormuz, the latest horrific Iran war is also helping to change the world forever in ways that could prove positive indeed.
The IEA said global oil inventories fell by 250 million barrels over March and April as supply losses mounted.
Restricted tanker traffic through the Strait of Hormuz has shut in more than 14 million barrels a day of oil.
OPEC trimmed its 2026 oil demand growth forecast while traders remained broadly bullish on crude.
The West’s international energy watchdog has warned that oil stockpiles were being drained at a record rate last month as the US’s war in Iran continues to choke supply in an “unprecedented” supply shock.
The International Energy Agency revealed that around 4m barrels of oil a day were tapped from back-up supplies in April, within a detailed report on the global market.
It said: “More than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace … Observed global inventories, including oil on water, were drawn down by 250m barrels over March and April, or 4m barrels per day.”
The war has, in effect, closed the Strait of Hormuz through which tankers usually carry around a fifth of the world’s seaborne crude. The fragile ceasefire has not significantly boosted traffic.
The IEA labelled it “an unprecedented supply shock”, in words that chimed with fears of a looming fuel supply crunch, including of jet fuel into the peak summer holiday travel season.
The report included some stark numbers on the impact of the war: “With Hormuz tanker traffic still restricted, cumulative supply losses from Gulf producers already exceed 1bn barrels with more than 14 mb/d of oil now shut in.
“Global oil supply declined by a further 1.8m b/d in April to 95.1m b/d, taking total losses since February to 12.8m b/d.”
‘Unprecedented supply shock’
The agency said that “the petrochemical and aviation sectors are currently most affected” and pointed to price spikes ahead, as well as a “plunge” in “refinery crude throughputs” by 4.5m b/d” in the second quarter.
Then came an update from OPEC, the representative body of some of the world’s most influential oil-exporting nations.
It cut its 2026 forecast for global oil demand growth to 1.2m b/d in its latest Monthly Oil Market report, trimmed from 1.4m b/d in the previous edition.
It described the revised rise as “healthy”, but it reflected overall cuts to demand forecasts for the second, third and fourth quarters of the year.
OPEC said oil market traders trimmed their bets on a higher oil price, as “net long positions declined over April, mainly in ICE Brent”, the main international crude benchmark. It cited “profit-taking from previously accumulated long positions” amid “mixed geopolitical signals and potential de-escalation” in the Gulf.
Nonetheless, OPEC said, “Hedge funds and other money managers maintained a broadly bullish stance on the crude oil market” in the month.
During April, Brent Crude peaked at around $140 a barrel, depending on the exactitudes of the contracts concerned. Crude for physical delivery in the month crossed above $141, at the height of the tensions, while the shortest-term futures contracts hit $138 a barrel.
On Wednesday, Brent was at $107.43, down on the day by about 0.3 percent.
Crude over $100 and beyond has stoked a wave of concern about an inflation shock, caused by higher energy prices rippling through the global economy.
The IEA said: “A weaker economic environment and demand-saving measures will increasingly impact fuel use”.
Russian oil exports rise
But the Paris-based outfit also pointed to increased supply away from the world’s crude-producing heartlands.
It said: “Producers outside of the Middle East also pushed output higher and lifted exports to record levels in response to the crisis.
“Indeed, 2026 supply growth expectations from the Americas have been revised up by more than 600 kb/d since the start of the year, to 1.5m b/d on average.”
And there was insight into the knock-on effects for a nation also at war, in Ukraine rather than the Middle East:
“Russia’s crude oil exports have also risen, as repeated attacks on its refineries have cut domestic use and led to higher shipments, while the United States temporarily waived sanctions on Russian oil on water,” the agency said.
Overall, the IEA expects global oil demand to fall by 2.4m b/d year-on-year in the second quarter.
“For now, the steepest losses are seen in the petrochemical sector, where feedstock availability is becoming increasingly constrained. Aviation activity is also running well below normal levels”.
Declining diesel and jet fuel supplies are making long-distance global trade increasingly unsustainable.
That decline points to a future world divided into two major economic spheres centered on the Americas and East Asia.
Energy scarcity, rather than politics alone, is driving geopolitical conflict and economic restructuring.
The war with Iran is not going well. It is difficult to supply US troops with adequate food and other necessities. With summer arriving soon, the region will soon be an even more inhospitable place for ground troops to fight. An underlying problem is that the world economy was reaching resource limits even before the Iran War began, adding to the difficulties.
The most pressing resource limit is distillate fuel oil–an industry term for what we think of as diesel and jet fuel. This fuel is heavily used in transportation. It is also used extensively in agriculture and industry. Somehow, the system needs to cut back on these fuels for international trade so that more fuel is available for agriculture and industry.
President Trump of the US and President Xi of China will be meeting in Beijing on May 14-15. This meeting would seem to be the perfect time to start reorganizing the world with shorter trade routes, so that the world economy uses less fuel for transportation. China and the US are the two great powers in the world. Keeping trade mostly within the two areas shown in Figure 1 would be a way of using fuel oil more sparingly.
Figure 1. Map of the world showing how Gail Tverberg expects Presidents Xi and Trump might split most world trade. The vast majority of trade would take place within the two areas shown. Within these groupings, the centers of trade might be the yellow areas shown.
An advantage of such a plan, besides saving on fuel, is that it could stop the Iran War without clearly declaring one side the winner or loser. In this post, I will attempt to explain the situation further.
[1] Based on the ideas of Dr. Mohammed Marandi, I believe that China might be able to mediate a settlement between the US and Iran.
Dr. Marandi was born in the United States of Iranian parents. He currently lives in Iran, where he is a professor at the University of Tehran. In the video, One Country Quietly Won this War, he points out that, often, when two countries battle each other, neither one emerges as the clear winner. Both of them are damaged by the war. The actual winner may be a country that does not seem to be directly involved in the war.
In the video referenced above, Dr. Marandi discusses three historical situations in which a nation not directly involved in a conflict gained stature by being the “adult in the room,” when two other nations battled each other. In this case, Dr. Marandi believes that China could very well be the country that can exert enough pressure on both sides to get them to accept a proposed solution. He says that China has acted behind the scenes to bring about the ceasefire, and that Trump has acknowledged China’s role.
Dr. Marandi suggests the idea that the upcoming meeting of the two presidents might be an opportune moment to make major steps toward a mutually agreed settlement. I believe that the underlying problem is that there isn’t enough energy (particularly oil) to support a world population of over eight billion. Dividing up markets in the way I have suggested would at least somewhat alleviate the shortage. Of course, there may be other terms of a settlement, as well. In addition, not all the terms may be determined precisely at this time.
[2] The world doesn’t have enough diesel and jet fuel to maintain the current level of trade across the Atlantic and Pacific Oceans.
Figure 2. Combined diesel and jet fuel supply, divided by world population, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.
Figure 2 shows that per capita diesel and jet fuel started to drop at the time of the Great Financial Crisis in 2007-2009. Their supply took a larger step down in 2020, and it hasn’t completely recovered. In 2026, the Iran War has taken out more crude oil supply, for an unknown period of time.
Diesel and jet fuel are both very important as transportation fuels. Diesel is also important in agriculture because it provides the power needed for heavy machinery to till fields, even under the most adverse conditions. Diesel provides the power needed for large commercial trucks, many trains, and ships. Earth moving equipment is also typically operated by diesel fuel.
If the amount of trade across the Atlantic and Pacific could be greatly reduced, it would help alleviate the shortage of distillates. Of course, the tourist trade would also need to be greatly reduced. With recent spikes in aviation fuel prices, many flights are being cut. Some airlines, including Spirit Airlines in the US, are going bankrupt. The problem is starting to solve itself, but more changes will be needed.
[3] Looking at population and oil supplies, the Americas seems likely to come out somewhat ahead.
[3a] Comparing the populations of the two areas, the World ex Americas is much larger, and its population is growing faster.
Figure 3. World population between the Americas and the world excluding the Americas, based on data of the 2025 Statistical Review of World Energy, published by the Energy Institute.
President Xi (leading one hemisphere) would get the very large and still rapidly growing part of the world population. President Trump would get a smaller and less rapidly growing share of the world population. Between 2021 and 2024, world population grew an average of 0.6% per year in the Americas, and an average of 0.9% per year in the World ex Americas.
[3b] The Americas seem to have an advantage with respect to crude oil production.
Figure 4. Crude oil production per capita, based on data of the US Energy Information Administration.
It makes sense to look at energy amounts on a per-capita basis because the quantity needed depends on the number of people requiring the benefits of transportation, agriculture, and industry. On this basis, crude oil production of the Americas has clearly been outshining that of the World ex Americas. It is higher on a per-capita basis. In addition, the amount available has been increasing in recent years.
Figure 5, below, shows total crude oil production (not per capita).
Figure 5. Crude oil production of the Americas compared to that of the World ex Americas, based on data of the US Energy Information Administration.
Figure 5 suggests that since 2005, crude oil production for the World ex Americas has hardly increased. In fact, total extraction has decreased since 2019. A person viewing this data might conclude that crude oil production in this area may already be past its peak.
On the other hand, Figure 5 shows that oil production of the Americas has increased by about 65% since 2005. Many people believe that US shale production will soon decline. At the same time, however, increases seem likely in several other countries in the Americas, including Canada, Brazil, Argentina, and Guyana. Thus, while crude oil production for the Americas may decline in the near future, its decline is likely to be gradual.
[3c] Crude oil production by geographical area outside of the Americas shows declining production in all areas.
Figure 6. Crude oil production by geographical area for the World ex Americas, based on data from the US Energy Information Administration. Russia+ refers to Russia plus nearby countries that used to be part of the Soviet Union.
Figure 6 shows that Europe’s crude oil production started its permanent decline in 2001. Asia-Pacific’s production hit a maximum in 2010, and it has been declining since. Africa’s peak oil production took place in 2008, and it has been mostly declining since.
Russia+, which I use to refer to Russia plus nearby countries that used to be part of the Soviet Union, has an unusual production pattern. Its crude oil production started to decline in 1989, two years before the collapse of the Soviet Union in 1991. (This collapse in crude oil production likely contributed to the collapse of the Soviet Union.) Crude oil production for Russia+ rose from 1998 to 2019.
Russia+’s production took a big step down in 2020, and it has not been able to recover since. A person might think that Russia+’s oil production was post peak, even before the 2022 conflict with Ukraine broke out. If an oil exporter doesn’t have enough oil to export, it tends to create financial problems within an economy. Participating in a war can appear to mitigate the country’s problems.
Many people assume that the Middle East has endless inexpensive-to-produce crude oil. I don’t think that this is the case. Crude oil production of the Middle East (Figure 6 above) hit two similar peaks in 2016 and 2018, and it has been lower in years since then. I think that Middle Eastern oil production is likely past peak partly because of depletion issues and partly because most countries in the area require high taxes on oil exports to provide subsidies for their ever-growing populations. This leads OPEC to try to maintain high prices. Lower crude oil production since 2018 is consistent with the hypothesis that oil production for the Middle East is mostly post-peak.
One additional difficulty of the World ex Americas is that it is so heavily populated that it cannot access tight oil that might be available without displacing a large number of residents. Another difficulty is that very old wells, such as those in Saudi Arabia and Iran, are ones that it might not be possible to restart if they are shut in for an extended time.
[4] In terms of mining and manufacturing, the Americas seems to come out behind the World ex Americas.
The World ex Americas has rapidly ramped up mining and manufacturing. Coal has been the preferred industrial fuel, with natural gas consumption also increasing.
Figure 7. Energy consumption by type for World ex Americas, based on data of the 2025 Statistical Review of World Energy, based on data of the Energy Institute. Fossil fuel extenders include hydroelectric power, nuclear power, wind power, solar power, biofuels including ethanol, and any other types of add-ons to fossil fuels.
Figure 7 shows that the energy consumption of the World ex Americas started increasing more rapidly after China joined the World Trade Organization in 2001. The consumption of coal and natural gas has especially increased.
Figure 8. Energy consumption by type for the Americas, based on data of the 2025 Statistical Review of World Energy, based on data of the Energy Institute.
The economies of the Americas have tended to shift towards service economies. Emphasis has been placed on fuel efficiency. Homes are now better insulated, light bulbs are more efficient, and engines of vehicles are more efficient. As a result, energy consumption within the Americas has tended to stay flat (Figure 8).
I have used the same scale on Figure 8 as on Figure 7 to emphasize how low energy consumption for the Americas is now, relative to the rest of the world. After US oil prices first rose to a high level in 1973, the US started transferring manufacturing to lower-wage countries. Southeast Asian countries began to be favored after 2001. Moving manufacturing abroad helped hold down US energy consumption and helped make the cost of goods to the consumer cheaper.
The problem today is that moving so much manufacturing elsewhere has made it difficult for the Americas to go back to producing its own goods, including clothing, furniture, and transformers for electrical systems. Supply lines for a particular item, such as a refrigerator, often run through many countries around the world.
[5] The full transition to the configuration shown on Figure 1 could take well over 100 years.
Changes, such as new supply lines and the new placement of major population areas, cannot happen very quickly. But I expect that some of the same underlying principles that guided these decisions in the past will continue to guide them in the future.
For example, infrastructure (roads, bridges, pipelines, and (today) long distance electricity transmission lines) seems to be the most difficult part of an economy to maintain because of the huge amount of energy required. Before the days of fossil fuels, I understand that slave labor was often used to build and maintain infrastructure. Similarly, slave labor was sometimes used to staff the mines needed to support the building of such infrastructure. As we lose fossil fuels, we will need to think about reducing our reliance on infrastructure.
One low-infrastructure approach used in the past was to build cities near bodies of water, so that fewer roads would be needed. Boats could be used to transport goods without building roads or bridges. If fish were available, they could be caught and used for food. In Figure 1, I am imagining that we will head back in this direction, with cities especially along navigable bodies of water and the ocean.
Unless we discover ways to replace fossil fuel energy, I would expect that the system will tend to go down in the reverse order of when it was put up. In general, electricity was last to be added, after coal, oil, and gas from coal. Electrification was first built in cities; then electricity transmission lines were added to provide electricity to rural areas. Above-ground lines tend to be damaged in storms, leading to a need for frequent repairs. Because of this issue, I would expect rural electricity to disappear quite quickly, unless it is generated at the location where it is used.
Natural gas shipped as Liquefied Natural Gas (LNG) was added very late. Its cost tends to be much higher than that of pipeline gas. I expect it to disappear quite quickly.
A full transition to the two trading zones shown on Figure 1 would require a huge number of changes in supply lines. A 2025 chart by Visual Capitalist shows how much control China has over critical minerals. It states, “China controls key materials such as graphite, rare earths, and gallium–essential for green technologies and defense industries.” While the US has started working on its own production of minerals, it will also need to develop the processing capability for these minerals. Putting all of this in place will likely take many decades. This is a significant factor in the 100-year estimate.
[6] If energy supplies are limited, I would expect population centers closest to fuel sources to be especially favored.
Writers today talk about possibly running short of diesel and jet fuel in a few weeks or months. Clearly, if a population center is at a location where there are both oil wells and refineries for the oil from those wells, the area has a better chance of having fuel than an island in the middle of the Pacific with nothing to sell other than tourism. Thus, Houston, Texas, will likely have fuel, even when models suggest there will be shortfalls in many places.
Often writers concerned about resource shortages talk about the core and the periphery. The core needs to be near whatever source of energy is available that can be used to help grow crops and transport goods. At this point, oil is the fuel that is closest to filling this need. Electricity is a nice-to-have, and it can provide services like refrigeration for food. But it is not good for paving roads or building bridges. So, it can only add to the mix, not substitute completely for oil. Slave labor is the closest substitute for oil that the world has discovered. We would rather not go back to using such an approach.
[7] I am concerned that a major downward economic step will be necessary in the upcoming months and years, but I am hopeful that the meeting between President Trump and President Xi on May 14-15 can help smooth the way.
We are at a point at which it is clear that the current organization of the global economy is not working. I hope that the meeting between Trump and Xi will help put an end to fighting in the Middle East. I also hope it will help pave the way for a new path forward.
I expect that the path ahead will be a difficult one, both for the people in the Americas and the people in the World ex Americas. While the US has considerable energy supplies, it lacks manufacturing capability for many everyday goods. The US is also lacking in many critical minerals, especially those used in making high-tech products. With its high wages, it will need extremely high prices, unless processes can be made very efficient.
The World ex Americas may have an even more difficult step down. Its oil supply was already more stretched before the Iran War. Its overpopulation problem seems to be worse than that of the Americas. The World ex Americas is more directly affected by the damage done in the Middle East and the resulting loss of oil supply. And there seem to be many groups looking for war, even if the US leaves.
Let’s all keep our fingers crossed that the upcoming meeting will have a beneficial effect, both in the short term and in working toward a longer-term solution.
