A tasty excerpt from an illuminating analysis of
Peak Oil and Peak “Cheap Oil” by Erik Townsend that I found at www.chrismartenson.com. A very credible argument that explains why oil might very well make it back to $200 a barrel but is not likely to go much higher as that is the price point where governments of oil producing nations are likely to begin nationalizing oil producing assets and controlling energy markets as a matter of national security… It seems bad enough for oil… Haven’t seen anything yet about the coming water shortage crisis… And lets not forget that California is due to sink into the Pacific any day now… Do you believe now in the deadliness of the future?
Market force vs. Military force
One of the strongest arguments made by Peak Oil speculators is that prices will rise in large part because emerging economies (particularly China) are industrializing, radically growing their vehicle fleets, and generally likely to create enormous new demand for decades to come. On its face, this is a sound and well-reasoned argument and the fundamentals in those countries strongly support this conclusion. But this argument assumes that oil prices will continue to be set by a free-market supply and demand system. I think that a dangerous assumption.
I’m convinced that as Peak Cheap Oil arrives, a series of peak oil price shocks will cripple developed economies, including the United States. If and when rising energy prices due to peak cheap oil begin to impose a markedly lowered standard of living in the United States, I fear that this will become the justification for further American imperialism. I can easily envision Dick Cheney returning to politics, campaigning on a “take the gloves off” platform, and proposing to simply tell the middle east that their choices are to either sell the United States all the oil it wants for (say) $85 per barrel, or be annexed by military force. At present the American public would not support such an imperialistic policy, but sadly, history has shown that any time a developed, comfortable society is faced with the threat of loosing its way of life and standard of living, the rules change and the previously unthinkable becomes acceptable. The last fellow to use this phenomenon as the center of his political strategy was wildly successful in convincing his people that previously unacceptable things were now somehow “necessary”. His name was Adolph Hitler. And make no mistake; peak cheap oil will create an economic challenge for the United States very similar to the one that Germany faced at the time of Hitler’s rise to power.
Punishing those evil speculators
A recent trend in politics seems to be to scapegoat “speculators” for the policy mistakes of government. When the United States’ staggering national debt and unfunded liabilities finally bring on the greatest sovereign debt fiasco the world has ever seen, there’s no doubt in my mind that when treasury bond markets collapse, “speculators” will be assigned the blame. There’s no reason to assume Peak Cheap Oil will be much different. Investors should be acutely aware that if they make large windfall profits in a short period of time, there will likely be pressure to claw back or retroactively tax those profits in the name of the common good. No amount well-reasoned argument that the investor put capital at risk for an extended period in order to eventually reap that reward will even be given due consideration. As the economy is crashing harder and deeper than it did in 2008, the government will need a scapegoat and the peak cheap oil speculator is a likely target. Investors should consider the possibility of profits from speculation on crude oil futures being confiscated.