The Nation

EDITORIAL

Peak oil will have an adverse effect on all economies

Political turmoil and depletion of reserves in oil-producing countries will mean higher prices and inflation

The modern global economy has been built on cheap oil and its abundant availability. In spite of oil crises in the past, the world has so far survived unscathed. But what will happen to the world economy and to the Thai economy in particular in the aftermath of "peak oil"? WikiLeaks cables, as reported widely on the wire services, indicate that Saudi Arabia might be reaching the peak of its oil production. This means that in the future oil supply will fall, while prices will rise continuously. The WikiLeaks cables detail a meeting between a US diplomat and Sadad al-Husseini, a geologist and former head of exploration for Saudi oil monopoly Aramco, in November 2007. Husseini said that the Saudis are unlikely to keep to their target oil output of 12.5 million barrels per day. Supply from Saudi Arabia has kept international oil prices stable. But Husseini also indicated that the Saudi producers are likely to hit peak oil - the point at which global output hits its high mark - as early as 2012. "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray," says one cable. "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."The story of falling production from Saudi Arabia should not come as a surprise. Egypt, which is now facing anti-government riots and social upheaval, has also exhausted its reserves. Since last year, it has become a net oil-importer. The plundering of resources in the Middle East and elsewhere is taking place at a rate that many don't realise.At present, food and energy indices are the most trusted indicators of the world economy. The recent sharp rise in food prices has triggered riots in Egypt and other less-developed countries. Higher energy prices have also added on to the inflationary pressure. The poor are the most vulnerable sector to fluctuations in food and energy prices. Governments thus have to come up with subsidy measures for food and energy. If their fiscal positions deteriorate, they won't have enough in foreign exchange reserves to carry out these protective measures. Yesterday, the oil price in New York rose for the first time in six days as anti-government demonstrators planned to escalate their protests in Egypt, renewing concern that crude supplies from the Middle East may be disrupted. About 3.5 per cent of global oil output moves through Egypt via the Suez Canal and the Suez-Mediterranean pipeline. Some analysts expect the Brent prices to go to US$110 per barrel by this weekend. If the oil price were stay above $100 per barrel for too long, it would further aggravate the global financial turmoil. With the crisis in the financial markets, the crude price could easily go to $150-200 per barrel. That is the worst-case scenario for the global economy.The Thai inflation rate is very sensitive to higher oil prices, which will drive up local transport and production costs. As a heavy importer of energy, the rising oil price could derail the Thai economy and drain our reserves if we're not careful. We all should take the "peak oil theory" seriously. We need to start considering alternative fuel and energy sources. So far investment in alternative energies has not been taken seriously because oil prices have remained affordable and supplies are uninterrupted. But in the event of a sudden fall in oil production as a result of social and political upheavals in the oil-producing countries, the oil price will rise dramatically to hurt us all.


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