Beneath new energy abundance, a slow-boil oil crisis

In 2006 when James Howard Kunstler published his breakthrough book The Long Emergency, the next two years seemed to vindicate his warning that the oil age was coming to an end with perilous consequences. Oil soared to $147 a barrel in mid-2008. A few analysts suggested that it was headed for $200; but that was not to be. By autumn the stock market had collapsed and with it the world economy. Oil, too, then collapsed, trading in the mid-$30 range by December as demand for oil fell off a cliff with the economy. It seemed for months that the world was headed for an economic depression.

But extraordinary stimulative spending by governments around the world and emergency measures by central banks reversed the trend and led to a weak, but extended recovery of sorts that lasts to this day (though not for everyone--just ask the Greeks).

Oil prices have rebounded and have remained at or near record levels for more than three years when measured by the average daily price of the world benchmark Brent Crude. That high price (higher on average than the year of the spike) is holding back economic growth. It is creating a seeming puzzle for economic policymakers who don't understand why their extraordinary measures have not led to extraordinary growth. They are blind to the central role of energy and particularly oil in the economy.

Despite the so-called recovery, much of Europe remains mired in low or no growth, lingering on the edge of a deflationary spiral. Germany is the one bright spot; prospects for France continue to darken. In the United States jobs are only now starting to return to previous levels almost five years after a slow and laborious climb off the bottom of the so-called Great Recession.

Today, governments of some of the world's largest nations are still running extraordinarily high deficits, though these have come down as the world has inched its way out of the recession.

What appears to be masking the ongoing emergency is the rise in stock and bond markets (which has disproportionately benefited the rich who hold the most stocks and bonds). The disconnect between the still sluggish economy and the stock market which keeps hitting new highs is one indication that dangers lurk in the world economy.

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Retirees and others who are risk-averse have been getting virtually no interest on their money in the bank, interest that many rely on to live. For five years the world's central banks have maintained ultra-low interest rates designed to goose the economy. This policy has forced these risk-averse investors out of their comfort zone and into the stock and bond markets to obtain income and a chance at growth. Such markets, of course, carry far more risk than bank CDs.

The people at the top and those with substantial retirement investments are doing okay again, but do not understand the precariousness of markets which are now totally driven by government and central bank policy--policy that will inevitably shift or, if unchanged, will stoke the world's speculative fever to such a degree that no intervention will be able to prevent a financial crash.

Perhaps another reason that the long emergency we have entered does not seem like one is that some emergency measures have morphed into permanent fixtures of society. The Bank of England has held its key lending rate at 0.5 percent since 2009, the lowest since the opening of the bank in 1694. The projected US federal deficit of $492 billion for 2014--which previously would have provoked sharp public debate about the ruin of government finances--today seems unnoteworthy when compared to the four straight $1 trillion plus deficits from 2009 to 2012. The abnormal is becoming normal.

Analyst Doug Noland at first didn't believe that governments around the world would mortgage the future of their peoples to such an extent to protect and enrich the financial class in the aftermath of the 2008 crisis. Eventually, he dubbed the phenomenon the "government finance bubble." He expects it to be the largest and final bubble of a series occurring in the last 30 years. At the end there will be no Bank of Mars to bail us out when the government finance bubble collapses.

On the energy front, new hydraulic fracturing technology combined with horizontal drilling is being touted as the answer to high oil prices. But oil prices remain stubbornly elevated. And, the technology itself is designed to harvest oil from shale layers thousands of feet below conventional reservoirs, layers which are far more difficult and expensive to exploit. In a way, our extraction of shale-based oil should be considered an emergency measure, one designed to forestall a decline in world oil production and one that would never have been taken if the easy-to-get oil hadn't already been gotten.

Likewise, attempts to exploit oil under the Arctic Ocean (so far unsuccessful) are opening a new front in the era of "extreme oil" and should also be classified as emergency measures.

But the public and policymakers generally do not view these developments in oil exploration with concern. On the contrary such efforts are touted as evidence of humankind's inevitable advance through clever manipulation of the environment using technology. It is just this idea of inevitability which holds the public mind in thrall regarding the economy with a promise that conditions will return to normal sometime soon--normal being defined down to include all sorts of emergency measures.

Meanwhile, the rampage of an itinerant army of vengeful youths in Syria and Iraq intent on building a new caliphate and the suddenly shifting borders of The Ukraine and Russia (accompanied by the downing of a civilian airliner by belligerents) seems to trouble the public elsewhere very little. Regarding the Middle East few are saying out loud that oil and water are among the driving forces of intensified conflict that threatens to make current borders obsolete.

Joining in the mess are Palestinians and Israelis who are once again in a hot war that seems to draw yawns from the rest of the world populace.

As long as we ignore the role of climate change and resource and energy depletion, we can delude ourselves that somehow things will return to the way they used to be--before the long emergency began--that political or ethnic factors are the main problems and that it has ever been thus! So, we tell ourselves not to worry too much since these problems are really local or regional; as long as we can stay out of the way, we think we can safely ignore them.

But, of course, we can't because the world is now one global system dependent on critical resources coming from the very areas affected by conflict--oil, of course, in the Middle East and natural gas from Russia upon which Europe depends.

Is all of this happening too slowly to be considered an emergency? Emergencies generally make obvious the need for immediate and decisive action. Some people do indeed perceive that swift action is needed to address urgent energy and sustainability issues. But, it is also true that we will need decades-long engagement with such issues if we as a species are to navigate the path to a successful transition to a renewable energy economy that also conserves the soil, the water, the climate and ultimately us. Hence, the long emergency.

But in order to embrace such a worldview, most people would have to give up the supposed comfort offered by the financial bubble of the last generation, a bubble made possible by cheap fossil fuels, especially oil. It seemed as if the public might let go of this fossil-fueled fantasy after 2008. But because of the extraordinary financial measures deployed in an attempt to return us to business-as-usual, the global economic and financial system has been revived just enough to allow us to engage in a few more years of fantasizing--until our cumulative debts to nature and to one another catch up with us.