Jul 21, 2012

Oil, politics and resource wars

By Lars Schall

At the 10th conference of the Association for the Study of Peak Oil & Gas in Vienna, Austria, Dr Robert Hirsch, Professor Michael T Klare, Dr Karin Kneissl, Dr Daniele Ganser, and Jeremy Gilbert discussed for Asia Times Online and Matterhorn Asset MGMT different important aspects of oil .

Robert Hirsch: Chaos is going to occur just because of the announcement that Peak Oil is real.

Hirsch is a senior energy program advisor at Science Applications International Corporation, a senior energy advisor at MISI, and a consultant in energy, technology, and management. He is a former manager of Petroleum Exploratory Research at Exxon and assistant administrator of the US Energy Research and Development Administration responsible for renewables. (See end for full biographies)

Lars Schall: Mr Hirsch, in 2005 you were given the task to come up with a report related to Peak Oil. How did this came about?

Robert Hirsch: It came about because I did an analysis to look at the big problems that energy research and development should look into in the future, and I came across something called Peak Oil. Even though I have worked in the oil industry for many years, I'd never heard of Peak Oil. I started to dig deeper and deeper into it, and the deeper I got the more difficult and dangerous the concept was.

I knew that oil was a finite resource, I knew that you can only get so much out so fast. I had been in that part of the business, and when I thought about what that could do to economies worldwide it frightened me. What I did was then that I went to a laboratory of the US Department of Energy and said, the problem looks like it's real, when it hits we clearly have to do something about it, please give us some money, me and two colleagues, to be able to look into it and see the best we can do to in way of mitigating the problem. So I proposed the study to the government, the laboratory I was working with provided the funding, and then we did the study that we did. [1]

LS: And what did the government do with the study?

RH: As we worked through the study we coordinated with people at the laboratory, and we got their ideas, and we told them about the content of the study and so forth - so they were aware of what was happening. When we handed in the final report in they were shocked, and they were shocked because it made sense and because it indicated that to fix that problem it would take a huge amount of money and a significant period of time. This is not a problem that you could fix quickly.

They didn't knew what to do with the study because they were frightened. It turns out that the person who was the director of the laboratory was retiring, and she said: "I'll sign the report." She signed the report, but they tried to bury it. But then people in the Internet found the report and it was then made public.

LS: Is the fact that the US government is afraid of Peak Oil also the reason why it never talked about the problem during the administration of George W Bush really in public, even though they had this Energy Task Force in spring of 2001 where they looked into it because [then vice president] Richard Cheney was for sure aware of it?

RH: When somebody in authority stands up and says to the world that Peak Oil is real and that we have to deal with it, chaos is going to occur just because of the announcement. People will get frightened, they will start hoarding gasoline, they will begin what they did before, which is to tap-off their gasoline tanks and their automobiles, and that will pull the system dry and give you shortages immediately; businesses will revise their plans and become much more defensive, stock markets will see the uncertainty and undoubtedly will drop dramatically.

There will be chaos when someone of significance stands up and says that there is a problem. My assumption is that whoever does that, if it happens, they will also say what they or their company is going to do to mitigate the problem and minimize the loss of business that will be associated with whoever or whatever organization is involved.

LS: Another part of the equation are the big oil majors. How are they dealing with the problem, because it endangers their business model?

RH: The major oil companies with one exception have denied that the problem exists. One has to wonder why? The answer probably is because it would create chaos and cause them trouble in what they are doing now. My view is that of the things that can be done to mitigate, to provide oil from other sources - heavy oil, coal to liquids, gas to liquids - the major oil companies will be the companies that will best be able to build the plants, the production facilities that are involved, because they know how to do that kind of thing, they have that expertise.

So they may suffer from a short-term hit in terms of how their stocks are viewed, but they also will benefit, because the oil that they have will be worth much more, also because they have the capability to build the mitigation plants that will be necessary to get us out of the immediate problem. It won't happen quickly, it will happen over time.

LS: In your study have you run into the problem related to reserves? There is a huge uncertainty with regards to the different types of reserves and the connected secrecy.

RH: The reserves problem is a very complicated one, and that's why it took me personally a number of years to work through and develop the understanding that I have today. There are a number of organizations that are lying, outright lying, about their reserves for their own political purposes. That's true also with some countries in the Organization of Petroleum Exporting Countries [OPEC]. I think there is very, very little question about that. Moreover, there are other countries and companies that are not very good, and so they are not making not very good estimates, and if you are not going to make a good estimate you might do it rather on the high side rather than on the low side because people like to hear a larger number.

The reserves that different companies have are company secrets. The information is kept very much for themselves. There are outside organizations and individuals that have tried to analyze and determine what reasonable reserves are with the countries or companies that are involved, and I think some reasonable estimates have been made, but they are not perfect. Even at that, when you would go in and look within a company, there are some that are better able to make good reserve numbers and there are others that are just technically not able to do a very good job. So it is squishy.

LS: Related to Peak Oil you believe this is rather a liquid fuel problem and not an energy problem. Why so?

RH: There is something like $50 trillion to $100 trillion of capital equipment worldwide that is built to operate on liquid fuels - and I am talking about cars, busses, ships, trains, airplanes, and golfcarts. You don't quickly convert those or replace them, particularly if the problem takes place in a worldwide recession - there is less money available, governments are already weakened because of the present recession, governments will not be able to afford to do this kind of a thing.

So it's going to be very difficult and it is going to take a considerable amount of time to either convert an existing piece of equipment to operate on something else or to build a whole new one and have it put into operation, because what we are talking about is a scale that is absolutely enormous as far as the world is concerned.

LS: You are personally investing in gold, and the reason for this is called inflation. You are also comparing what we are facing in the near future according to your analysis and what has happened in 1973/74. Can you bring both things together for us, please?

RH: I look at history because there are often parallels to what may happen in the future, and if you don't pay attention to history you are doomed to relive it, as has been said. Looking at 1973/74, even though the economic circumstances were different then in many ways, in other ways they are not. People are the same, and we react the way we react. And most people, I believe, understand how we all react - we don't like bad news, we tend to ignore problems until they hit us directly.

What happened in 1973/74, I think, provides guidance as to what is likely to happen again because it will be largely a human reaction that will affect not only people but economies and businesses and international trade, and so forth. So I believe looking at what happened back then, when there really was a shortage, not just a spike in prices, there was a real shortage, that you can gain a good deal of understanding as to what is going to happen when this thing hits in the near future.

LS: Related to the pricing of oil do you think that there will be changes? For example, you are surely aware that India and Iran are doing their dealings in gold.

RH: Probably changes will occur. But it is very difficult for me - knowing what I know and looking at what economists know - to forecast such things. I think many different things are likely to happen. No one should be surprised that changes occur. I tend to look at things from a fundamental point of view of how much material is there and what it takes in terms of human activity to take whatever material we are talking about and bring liquid fuels to a point where consumers can use it.

So I tend to look at that problem, and problems of changes in finance and inflation associated with one currency that is stronger than another and so forth, those things will damp out in my opinion over time. They will have short-term effects that could be significant, which can either help or hurt some of the people involved, but they are not as fundamental as the fact that we are dealing with a limited resource

LS: Okay, we have a limited resource, but then again we have almost unlimited money creation. Doesn't this cause a little problem?

RH: That goes back to your earlier question. If you print a lot of money you are inherently going to have inflation, and in inflationary times people in the past have gone to gold as a hedge, as something that is limited, that you can't print, that has value, and that has happened many, many times over the years. Therefore, I believe that to protect assets that I have I need to have some of my assets in gold.

LS: Off the record you have already told me that you have a problem with the term "Peak Oil". Why?

RH: I have a problem with that term because it implies a sharp peak, like a top of a mountain, an inverted V, and it has the connotation that after that occurs there would be disaster. The term I like better is "The Onset of the Decline of World Oil Production", because what happened is that we had a little peak already that people call the peak of conventional oil production, and yet nothing terrible has happened. It's a tiny peak. It's almost imperceivable looking at graphs. So I have trouble with the term "Peak Oil" because it implies imminent disaster, whereas the term "The Onset of the Decline of World Oil Production" is longer, it has more words, but is in fact a much better indicator of the unset of serious problems.

Michael T Klare: The control over the global flow of oil is the 21st century equivalent of nuclear supremacy in the 20th century

Klare is the Five College Professor of Peace and World Security Studies (a joint appointment at Amherst College, Hampshire College, Mount Holyoke College, Smith College, and the University of Massachusetts at Amherst). His books include The Race for What's Left: The Global Scramble for the World's Last Resources and Rising Powers, Shrinking Planet: The New Geopolitics of Energy.

Lars Schall: Michael Klare, why are oil and geopolitics so close aligned?

Michael Klare: It began because oil is crucial for warfare, that was how the link with geopolitics began, and this happened during World War I. When oil-powered weapons first made their appearance on the battlefield with oil-powered tanks, airplanes, submarines, and war ships it proved decisive in many ways, and leaders understood that the future of warfare would be decided by oil-powered weapons. Therefore, it was essential for any major power to have a secure supply of oil in order to supply their armed forces. So a lot of the diplomacy during and after World War I was aimed at securing a supply of oil for the military. This is the beginning of oil geopolitics.

After World War II, it became clear that oil was also essential for the economy of most countries, and therefore it acquired an economic as well as a geopolitical dimension. This is expressed most clearly, I think, in the Carter Doctrine of 1980, which says that the flow of oil from the Middle East is a vital national interest of the United States, not just in military terms, but also in economic terms, and to protect that flow the United States will use any means necessary, including military force. It was on that very basis that US president George Herbert Walker Bush legitimized the US intervention in the Persian Gulf War of 1990/91.

LS: And you think it remains a dominant factor in US foreign policy today?

MK: Absolutely. Not only for America's own requirements, although that is very important. The US also seeks to be the most powerful player in controlling the global flow of oil because oil is so crucial to the world's economy; by controlling the flow of oil the US has control over the world economy in a sense. As I see it, this is the 21st century equivalent of nuclear supremacy in the 20th century.

LS: Yes, and in fact, in Rising Powers, Shrinking Planet you are talking about the equation between oil exporters and oil importers, and you are talking in that respect explicitly about a specific kind of New World Order. What do you mean by that?

MK: I think in a world where energy is essential for economies and where energy is never going to be sufficient to meet growing needs, countries that have a surplus of energy to export are going to be in a privileged, powerful position, and countries that have insufficient energy to meet their needs and are dependent on energy imports are in a disadvantaged situation. The world power hierarchy will be shaped by those with energy-to-export countries; those countries will be in a more dominant position. And countries that are dependent on energy imports are in a more subordinate position.

LS: Do you think that oil exporters like Russia are, related to the high oil price, in a better position than China in the sense that a high oil price is bad for China, and the United States is somewhere in between?

MK: Well, both China and the United States do produce some of their own energy, they are not wholly dependent on imports, they are both in an in-between position. But they do have vulnerabilities because for their liquid fuel, for their oil, they depend on imports from places that are at risk. So their economies will always be hostage to what happens in other places that they cannot control, and it's that vulnerability that has shaped the foreign policy of the US ever since the Carter Doctrine.

China is now becoming like the United States in a position of vulnerability, and its foreign policy increasingly is being governed in the same way by efforts to get better control over its dependence on foreign suppliers. So this puts it at a disadvantage.

Russia is the only great power of the major powers today that has sufficient domestic energy to supply all of its needs, and it does give it a swagger in international relations that it wouldn't otherwise enjoy. When the Soviet Union collapsed, if you look at the literature, the assessments made at that time, people thought that Russia would be a declining, disappearing power, it would be reduced to a Third World country; that's how people spoke about it. That is not true today. And the reason is not because it has a strong military or a strong economy, it doesn't, it's because it has tremendous energy resources that puts it in a disproportionately powerful position in the world economy.

LS: Would you say that at least one of the reasons why the Soviet Union collapsed was linked to the low oil price that was coordinated between Washington and Riyadh?

MK: I think there is good evidence that that was part of it, yes. But it was also the fact that the [Ronald] Reagan administration embarked on a military expansion at that time which was very expensive, and the US economy at that time in the Reagan period was capable of a massive military expenditure, which had the calculated intent of forcing the Soviets to keep up. They had then to divert tremendous amounts of money from domestic spending and their foreign clients in order to match US military expenditure, and they couldn't. The system collapsed under the weight of diminished oil income and higher military expenditures and declining capacity to satisfy their own citizens' expectations.

LS: One result of the collapse of the Soviet Union was the new republics in Central Asia. They see for two decades now a race by different foreign powers to establish pipelines.

MK: Exactly.

LS: Will this continue?

MK: Absolutely. The struggle for Central Asian energy is still very much an active struggle. What's different from where it was 10 years ago is that China has emerged as a major competitor in this game. China is now investing vast amounts of money to build pipelines from the edge of the Caspian Sea all the way across Central Asia to China. These are some of the most ambitious pipeline projects ever undertaken anywhere in the world. This was not anticipated even a few years ago, but China now is building large pipeline projects.

LS: Why is this the case?

MK: As I see it, this is a response to China's vulnerability to dependance on sea-borne trade in oil. As China becomes more dependent on oil imports, more and more of it comes by sea from the Middle East and Africa via sea lanes that are dominated by the US Navy, and the Chinese have come to understand that this is a double strategic vulnerability: on one hand they are dependent on imported oil which could be cut-off because of conflict or whatever, on the other hand they can't even protect their own sea lanes because the US Navy is so much more powerful. So China is very keen to expand its internal lines of communication, the overland lines of communication with pipelines to Central Asia and Russia - if they can work out the arrangement with the Russians for oil and gas coming from Siberia to minimize their vulnerability to sea-borne oil and gas imports.

LS: For the time being it seems that the most dangerous flash point in the world is the Strait of Hormuz, but in the long run the really most dangerous flash point is the South China Sea, correct?

MK: Yes. At this moment in time the most dangerous place is the Strait of Hormuz because if the current negotiations between the West and Iran fail there is the likelihood that either Iran will close the Strait of Hormuz as a response to tightened economic sanctions, which will then lead to US military action, or the US itself or Israel will initiate military action to destroy Iranian nuclear facilities. I see a high likelihood that military action will occur in the Persian Gulf. But if that happens that will be a rather limited conflict in most likely outcome.

The South China Sea I don't think is going to produce in the short-term a violent conflict, but it is indeed more dangerous over the long-term because it poses the risk of a conflict between the two greatest powers of the day, China and the United States, because China claims the South China Sea as its national territory, and that claim is contested by other countries - the Philippines, Vietnam, Malaysia, Indonesia - and those countries are allied to the United States; and the United States has said that it will support its Allies in a confrontation with China, and therefore emerges the possibility of naval clashes occurring that will bring both major powers into conflict.

LS: Which role will the energy issue have for the presidential campaign in the US?

MK: I believe that energy will be a dominant, if not the dominant, issue in the presidential campaign because the Republicans with strong support from the oil industry are making this a central feature of their campaign to push for the maximal production of domestic oil and gas resources; pushing energy independence as a national security objective, claiming that this will create jobs, creating the false impression this will lead to cheaper energy prices, [They are] also using all kinds of emotional appeals to a vision of a America of the past when oil was cheap, when suburbia was in bloom, when America was more powerful, claiming that the Obama administration is dominated by environmentalists who want to put their environmentalist agenda ahead of the well-being of ordinary Americans who will benefit presumably from the unlimited exploitation of domestic oil and gas.

Karin Kneissl: Spikes in oil prices are driven artificially.

Kneissl works as an independent energy-analyst, university teacher and writer. She studied law and Arabic at Vienna University, has done postgraduate studies in the USA, Israel, Jordan and Italy and has taught seminars in Turkmenistan and Lebanon, where she is a guest-lecturer in Beirut. Her books include The Energy Poker, which discusses the repercussions of the current financial market crisis on the price of oil and natural gas.

Lars Schall: Ms Kneissl, how did you become interested at all in energy issues?

Karin Kneissl: When I quit from my job at the Austrian Ministry for Foreign Affairs without regrets some years ago, I started as a freelancer to concentrate on energy issues, because in 2000/01 for me it became really the name of the game. For example, when I suggested to teach academic courses on energy issues, the only people who were interested in it were the military people.

These people understood ever since the beginning of the 20th century that there is an immediate link between physical access to oil fields and energy security. This is illustrated by the fact that oil alliances are mostly resulting in military alliances, too. Sheikh Yamani, the former Saudi oil minister, said once back in the 1970s: "Oil alliances are more solid than Catholic marriages" - because they are simply meant to remain for a very long time and nobody can cancel them.

LS: Do you think the so called "War on Terror" is linked to energy?

KK: Fortunately this term doesn't exist anymore in official terminology of US politics. In 2001 it was meant to fail in many regards for the simple reason that to fight a non-territorial enemy is doomed to fail. There certainly is some linkage due to the fact that several persons inside the Bush administration did back then their utmost to create some sort of linkage between 9/11 and the situation in Afghanistan and the Iraqi regime. But what I would like to point out is the fact that out of the 19 alleged terrorists of the 9/11 attacks, 15 had a Saudi passport and not one of them was of Afghani or Iraqi descent.

LS: And do you think it is by chance that those, let us say, "phantom enemies" of the US are based where oil and natural gas are based in large amounts, too?

KK: No. But what I think is weird in the whole thing is - and I am personally against every form of attacking any kind of "phantom target - if you would like to be really honest about the dilemma and if they are insisting on an attack then that should have been made against the central bank of Saudi Arabia because it is the one which is channeling major funds.

LS: Do economists in your view pay enough attention to issues of energy and geopolitics?

KK: What I often realized when teaching courses to people who come from economics or investment is that they lack basic knowledge in history. They have a tendency to interpret supply and demand and price developments purely through their PC screen and rarely undertake the effort to learn more about the people and the places they are involved with by traveling there or even only by thinking a little bit about the historical contexts.

LS: Is it more difficult to overcome the financial crisis when there is an energy crisis with high oil prices?

KK: I wouldn't be fixed about high oil prices. The spikes in the oil price of the past years were always driven artificially. There definitely is a current major problem between a sense of bankruptcy in many places and the energy prices, but I wouldn't really refer them to Peak Oil or other aspects. The major obstacle is in financing the new infrastructure that is needed when it comes to Germany, for example, and the high-voltage highways and new grids. This will be needed in order to to make energy from renewable energy sources come online. France faces similar problems in order to innovate the grids, and in order to keep maintenance costs for fairly old nuclear power plants.

LS: Do you consider it as important that Iran is looking for different means for the pricing of oil like gold? [2]

KK: Iran has announced different options for many years, but so far nothing has really materialized. In my eyes, the whole Iran factor is hyped by the media. Moreover, when I talk to people from OPEC, of course, there is a lot of thinking of finding new currency baskets - though this is something that is not only driven by oil producing countries, but rather as far as I have understood by major consuming nations, inter alia the People's Republic of China. And even The Economist published some years ago several articles in the sense that there's a need for a currency basket that truly reflects the current situation and that the US dollar as the lead currency should be replaced by a more balanced currency basket, where gold could be one of the ingredients.

LS: Have the countries in the Middle East a special affinity for gold?

KK: I think they trust gold to the same extent as many other countries. Russia considers gold as a solid form of currency and not as a commodity as it has been treated by several banks and governments of the Western hemisphere. This is not something exclusive specific to Middle Eastern countries. India would be another example.

LS: Since 2002, the peak of oil production in Europe has been passed. [3] What does this mean for this continent and its relations to the central and eastern parts of Eurasia - since that's where the oil and gas is?

KK: Well, when you go to Eurasia - I have been in Turkmenistan and Uzbekistan several times over the past years - , the pipelines there are all turning to the East and the South. Nabucco [a proposed pipeline to transport gas to Europe from the Caspian] is just the most famous failure of the European effort to diversify and to bring natural gas in from Central Asia. Europe has no energy strategy, and the countries in Eurasia have no one they can negotiate with - the energy commissioner of the EU, for example, has a very limited mandate. In the end they will always have to sit down with the people from the energy companies.

LS: Since we have talked about the oil price, what kind of a role do you think the futures market and banks such as JP Morgan Chase, Goldman Sachs and Citigroup play regarding the oil price? And would you agree with me that the Peak Oil people underestimate the forces of the futures markets?

KK: Well, I must admit that I am not too familiar with the level of knowledge of the Peak Oil people related to the futures markets. Personally, I think that you have to take it most definitely into account. When I am asked about the factors that drive the price of oil and also many other forms of energy, it's the supply and demand, of course, it's geopolitics, it's the weather, it's demography, but it's also the financial markets, and the latter is a very important force.

LS: Do the financial markets need to be regulated in this market in a much tougher manner?

KK: Oh, the financial markets need to be regulated in so many areas. I am afraid that the regulation that will come will be the big bang of nationalization and centralization - that is not the kind of form of regulation that I am waiting for. I studied law in the early 1980s, and the law that I studied when it comes to financial market affairs by and large had nothing to do with the absence of law as it is practiced today, which is the result of the liberalization of the markets.

You have to put certain control mechanisms and sanctions into place when something wrong is committed. We have seen that the financial markets today simply went out of control. And I think that the volatility of the oil market, in particular in 2008, was a pre-taste of what we have seen afterwards in so many other areas - food prices, for example. In general, as far as I am concerned, the financial markets have lost all logic.

Daniele Ganser: 9/11 and Peak Oil must be linked in a coherent geostrategic analysis

Ganser is a Swiss historian who specializes in international relations and international history from 1945 to today. He is director of the Swiss Institute for Peace and Energy Research (SIPER) and teaches at Swiss universities, including the history department of Basel University. He is the author of NATO's Secret Armies: Operation GLADIO and Terrorism in Western Europe

Lars Schall: Mr Ganser, you are here at the ASPO conference the only researcher who's willing to connect Peak Oil with 9/11. What is your experience with this approach?

Daniele Ganser: There was a book published in the US a few years ago by Michael Ruppert which was called Crossing the Rubicon, and Ruppert basically said that Richard Cheney, the vice president of the Bush administration, manipulated the terror attacks of 9/11 in order to have the whole population of the United States ready for resource wars that would be fought under the pre-text of fighting terrorism. [4]

And Michael Ruppert has put up a very important question, he asked: is it really a hunt for bin Laden or is it a hunt for oil and gas? He has been very clear about his answer: the whole bin Laden thing is nonsense, it is actually and very clearly a hunt for oil and gas. And here within the ASPO network people know that oil and gas are in decline, and therefore I added this 9/11 debate, and some people were scared because of it and others thought that these are exactly the right questions to ask.

LS: With regards to Richard Cheney, he headed in spring of 2001 a very important Energy Task Force. The records of this Energy Task Force are kept secret. In 2012 we are still discussing at this conference the uncertainty related to reserves and data secrecy. Wouldn't it be necessary to open the records of this Energy Task Force to the public because they might contain the most accurate reserve data?

DG: Well, it would certainly be interesting to see those records. We know from a speech that Cheney gave in 1999 in London at the Petroleum Institute that he was very well aware of the problem of oil depletion. [5] Cheney's solution to the problem was violence. He was wrong with that. He was right that the oil supply is in decline and that the big reserves are in the Middle East - and that's exactly what you find in the National Energy Policy Development Group (NEPDG), the data that is available indicates that Cheney and his group were looking at this very, very closely.

LS: And so you would say that the 9/11 research is incomplete without a thorough investigation of what the NEPDG did?

DG: Yes, and we would learn a lot about oil through this. The debate of the Bush administration for six months was an energy debate, and it was basically a debate during which the NEPDG was looking at global oil supply. Already at that time they were talking about the supplies in Iraq and a war in Iraq - we know this from Paul O'Neill, for instance, the US Treasury Secretary back then. [6]

So it was an energy debate in the first half of 2001, and in the second half of 2001 everything changed - it was then a debate about terrorism. I find this very peculiar because it actually started with 9/11. And yes, I believe you are absolutely right: 9/11 and Peak Oil must be linked in a coherent geostrategic analysis.

LS: Is this also a reason why you focus in your work increasingly on the topic of resource wars?

DG: I think that the war in Iraq in 2003 was a resource war in which hundred of thousands of people were killed. So this is a very important phenomenon for peace research. I am very much engaged in the peace research movement, thus I have focussed in 2011 on Libya because that war to me was again a resource war. Now we have this debate whether we'll have a war against Iran or not. Of course, I hope we won't have a war against Iran, but obviously Iran has some of the biggest conventional crude oil supplies in the world. They also have very huge supplies of natural gas.

Then we have a conflict between North and South Sudan, we see tensions between China and the Philippines because of the energy resources in the South China Sea, and all these issues must be addressed directly; we cannot say all of these things are a promotion of democracy as was said in the Libya case, or it is about weapons of mass destruction as was argued in the case of Iraq. That's why I think that we must talk about these issues openly so that people know that Peak Oil wars are going on, and if they know it I hope they will ask the logical question: what is Peak Oil?

LS: In the case of Iran, do you perceive it as interesting that the Iranians are trying to get away from the pricing of oil in US dollars?

DG: I know that there is a debate about this, but until now we see that the dollar still dominates the global crude oil market, which means if you want to buy oil you have to have dollars and that actually gives the Americans a lot of influence and power. Obviously after Nixon abandoned the link between gold and the dollar in 1971, the US can actually create dollars at no costs, and this has lead to a situation in which they have flooded the system, there is a lot of money in the system that is created out of thin air, out of nothing. Thus, on the one hand we are facing the limits of nature, but on the other hand we don't see it because we put a lot of dollar over it.

LS: As you know there is a growing number of people - and these are not stupid people - that say Peak Oil is a myth, invented by the oil companies to prop up their revenues. How do you counter this?

DG: I know that F William Engdahl, for instance, says this, and Engdahl is a highly intelligent man, no doubt about it. [7] I don't agree with him, but that's the point: the world is a complex place and organism, and many people who are intelligent come to different conclusions related to what is actually going on. As to the specific question of biotic and abiotic oil, I look at the decline of the oil supply in the North Sea, I look at the decline of the British and Norwegian production, and I come to the conclusion that this decline is real. The British are now net importers of oil at a price of roughly US$100, they sold their oil when it was at $10 or $15. Of course, they would not import any oil unless it was not absolutely necessary. They do it to my understanding because they really have this problem of depletion.

Jeremy Gilbert: We need an independent view of what the oil reserves are.

Gilbert is managing director of Barrelmore Ltd, which provides technical audit and training support to the oil industry worldwide. He retired from British Petroleum (BP) in 2001 where he was responsible as resource development manager for the company's worldwide petroleum engineering performance and associated research and development program.

Lars Schall: How did you come to the topic of Peak Oil as someone who worked for the oil industry?

Jeremy Gilbert: Well, that's an interesting question. I worked for the oil industry for nearly 40 years, and I still work in the oil industry although I am retired from my job at BP. When I worked for the industry, my job was basically trying to increase the company's reserves - my responsibility was coming up with ways of improving recovery efficiency. I suppose I didn't really think an awful lot about the world situation, I thought about the countries I was working in and I thought about the company's situation.

When I retired and went back to live in Ireland where I came from originally, I found myself living just a few miles from another retired oil man, whose name is Colin Campbell. He was one of the people who on his retirement had become involved in studying world oil reserves and world oil supply based on those reserves. He convinced himself and a few other people that the world was heading towards a point where supply was going to reach a limit. My initial reaction was that this was rubbish. Granted, there would be a limit ultimately, but I thought it was many, many decades away.

So I set myself the challenge of proving to Colin that he was wrong. I spent a lot of time with Colin, and I ended up failing to convince him that he was wrong, in fact I convinced myself that I was wrong. I became a convert to the concept of an early peak in oil supply and the fact that it is going to come to a maximum sometime in the near future.

LS: There is a huge problem connected with the issue of Peak Oil and that is the data secrecy related to reserves. Why is it important to overcome this secrecy?

JG: Currently, when we talk about oil supply we are completely dependant on data given to us by the oil producing countries and oil producing companies. We have no way of assessing the accuracy of that data, and in fact we know that a lot of uncertainty is associated with it, but we don't know how much uncertainty is associated with it. Because oil is so important to the world economy, I believe that we need to be able to independently check the accuracy of the data given to us by the oil industry.

LS: And why is it important to know more about the reserves?

JG: It's important to know more about the reserves because the size of the reserve determines how quickly we could produce that oil - if the reserves are very large then we can tolerate high production rates for a long time, if the reserves are small we may still be able to produce oil at high rates as we do currently, but the oil won't last very long. So we do need an independent view of what those reserves are. The evidence that we have suggests that some countries have grossly overestimated or over-reported their reserves.

LS: Then there is also the problem with the maximum bearable costs of oil for the economy.

JG: Well, I'm not an economist, but it seems to me that when the oil price peaked four years ago at round about $147 per barrel, it peaked just about at the level where people were unwilling to pay for it. Of course, there is a lot of talk about whether or not speculators drove the price up to that level, but whatever got the price up there, it was falling demand that got it down again.

So I think there is a maximum price level that people are prepared to tolerate or can afford to pay, whether they are poor farmers in Bangladesh or whether they are millionaires in Manhattan, and that maximum sets the price that the oil industry gets for its oil and sets a limit on the technology the industry can apply to developing their reserves. Therefore, we really need to know what the reserves are, we need to know how those reserves can be translated into supply, and we need to know how people's need for oil is effected by the price they have to pay for it.

LS: Why do you think there is no meaningful debate going on between the oil industry and people like you?

JG: I genuinely think that people in the industry are still to some extent in ignorance about what's happening around them. So they are reluctant to talk to us, partly because they are afraid of showing their ignorance, and partly, of course, because if there truly is a peak and a significant decline in oil supply coming, the oil companies don't want to spur research into alternative forms of energy.

So I think there is an element of fooling themselves, an element of not really understanding the true situation, and an element of fear.


1. "Peaking of World Oil Production: Impacts, Mitigation & Risk Management" by Robert L Hirsch, Roger Bezdek, Robert Wendling. February 2005.

2. See "Sinking the Petrodollar in the Persian Gulf" by Pepe Escobar. Tom Dispatch, January 17, 2012.

3. See "Europa am Peak" by Norbert Rost. Telepolis July 9, 2012.

4. Crossing the Rubicon: The Decline of the American Empire at the End of the Age of Oil by Michael C Ruppert. New Society Publishers, 2004.

5. Full text of Dick Cheney's speech at the Institute of Petroleum Autumn Lunch, 1999. Energy Bulletin, June 8, 2004.

6. The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill, by Ron Suskind. Simon and Schuster, 2004.

7. See "Confessions of an 'ex' Peak Oil Believer," F William Engdahl. September 14, 2007.


Robert Hirsch is a Senior Energy Program Advisor at SAIC, a Senior Energy Advisor at MISI, and a consultant in energy, technology, and management. Previously, he was a senior staff member at RAND (energy policy analysis), Executive Advisor at Advanced Power Technologies, Inc. (environmental and defense R & D), Vice President of the Electric Power Research Institute, and Vice President and Manager of Research and Technical Services for Atlantic Richfield Co. (oil and gas exploration and production). He was the founder and CEO of APTI (commercial & defense technologies), manager of Exxon's synthetic fuels research laboratory (coal & shale conversion), manager of Petroleum Exploratory Research at Exxon (refining R & D), assistant administrator of the US Energy Research and Development Administration responsible for renewables, fusion, geothermal and basic research (presidential appointment), and director of fusion research at the US Atomic Energy Commission and ERDA. His education is in engineering and physics.

Michael T Klare is the Five College Professor of Peace and World Security Studies (a joint appointment at Amherst College, Hampshire College, Mount Holyoke College, Smith College, and the University of Massachusetts at Amherst), and Director of the Five College Program in Peace and World Security Studies, a position he has held since 1985. Before assuming his present post, he served as Director of the Program on Militarism and Disarmament at the Institute for Policy Studies in Washington, DC (1977-84). Professor Klare has written widely on US defense policy, the arms trade, and world security affairs. He is the author of numerous books including The Race for What's left: The Global Scramble for the World's Last Resources (Metropolitan Books, 2012), Rising Powers, Shrinking Planet: The New Geopolitics of Energy"(Metropolitan Books, 2008), and Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum (Metropolitan Books, 2004). Professor Klare received his BA and MA from Columbia University in 1963 and 1968, respectively, and his PhD from the Graduate School of the Union Institute in 1976.

Karin Kneissl works as an independent energy-analyst, university teacher and writer. She authored several books and articles on energy and Middle East related topics. From 1990 to 1998 she served in the Austrian Ministry for Foreign Affairs. She studied law and Arabic at Vienna University, did several postgraduate studies in the USA, Israel, Jordan and Italy. Recently, she taught several seminars in Turkmenistan and Lebanon, where she works as guest-lecturer in Beirut. She teaches in Vienna (Diplomatic Academy, Military Academy) and at the European Business School (Frankfurt). Her publications range from books on the Middle East (The Cycle of Violence, 2007) to diplomacy (The Invention of Diplomacy, 2009). In 2008 a second and revised edition of the book The Energy Poker was launched in Munich, wherein the repercussions of the current financial market crisis on the price of oil and natural gas are tackled. Her articles on the energy market have been published in peer-reviewed journals, notably in India, Poland and France.

Daniele Ganser is a Swiss historian who specializes in international relations and international history from 1945 to today. His research interests are peace research, geostrategy, secret warfare, resource wars, globalization and human rights. He is Director of the Swiss Institute for Peace and Energy Research (SIPER) and teaches at Swiss universities, including the history department of Basel University. He is author of the book NATO's Secret Armies: Operation GLADIO and Terrorism in Western Europe (Routledge, 2004). From 2001 to 2003 Mr Ganser was a senior researcher with the Think Tank Avenir Suisse in Zurich, after which he became a senior researcher at the Center for Security Studies at ETH in Zurich, a position he held until 2006. Mr Ganser has researched at the Military Academy of the Swiss Federal Institute of Technology. He has been invited several times by the Swiss parliament to offer his expertise on matters of foreign and security policy. He obtained his Master in history in 1998 summa cum laude and his PhD in history in 2001 insigni cum laude.

Jeremy Gilbert is managing director of Barrelmore Ltd, a company providing technical audit and training support to the oil industry worldwide. He retired from British Petroleum (BP) in 2001 where he was responsible as resource development manager for the company's worldwide petroleum engineering performance and associated research and development program. He joined BP in 1964, worked as production engineer in Libya, the US, Kuwait and Abu Dhabi - prior to eight years in Iran in reservoir engineering posts and as planning manager. From 1979, he supervised BP's North Sea reservoir engineering and later managed all BP's UK petroleum and reservoir engineering activities. He has worked in San Francisco as vice president of BP Alaska Exploration before returning to UK in 1987 as technical manager. In 1988 he was appointed BP's chief petroleum engineer. He has been chairman of Heriot-Watt University (Edinburgh)'s Industrial Advisory Board, a member of Imperial College (London)'s and of University of Alaska (Fairbanks)'s Industrial Advisory Boards, and an external examiner for Masters' courses at Robert Gordon's University (Aberdeen) and Heriot-Watt Universities.

Lars Schall is a German financial journalist.

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