War. War Never Changes.

The importance of resources in maintaining global hegemony

Photo by Daniel Olah on Unsplash

We are marching towards a full scale world war. In fact it has already begun in one battlefront and in the field of economic relations. On the face of it, it’s about fighting against autocracy and ‘unprovoked’ invasions in the name of protecting freedom and democracy. Dig one level deeper and you find rather different motives like fear of losing global military hegemony, influence and power. Personal hatred against certain nations and people. Prejudices. Greed. Resources. The usual suspects.

“War, war never changes. The Romans waged war to gather slaves and wealth. Spain built an empire from its lust for gold and territory. Hitler shaped a battered Germany into an economic superpower. But war never changes… In the 21st century war was still waged over the resources that could be acquired. Only this time, the spoils of war were also its weapons. Petroleum and Uranium.”

Intro, Fallout — Interplay Entertainment

For those who paid attention so far, this was entirely foreseeable. Despite all the claims to the contrary the world economy still runs on oil. It is the ‘master resource’: fueling all the heavy machinery, doing all the hard labor our ancestors ended up breaking their backs doing. Agriculture, mining, transportation.

With it’s peak production most probably in the rear-view mirror (November, 2018) and without reasonable hope for a stable recovery we are entering a dangerous period in history. Just like a hundred and ten years ago, the peak of a master resource — then coal — has coincided with the dusk of a global empire — Britain — leading to a very similar situation preceding World War I and the Great Depression afterwards.

A historical analogue

Oil has saved us once from a long decline which started in 1929 and was ominously called the Great Depression. Behind the fanfares of economic hardship, overproduction and stock market crash was a silent killer: peak coal produced by coal. Steam engines has reached their practical limits of efficiency and could not enable the mining and hauling of coal from further away as the close to surface, easy to reach deposits were depleted. Just take a look at these charts: per capita coal production has peaked right before WWI in 1913:

Source

Coal has never managed to make a return. As the chart below shows: CO2 emissions — a close proxy to production, besides showing how destructive our practices are to the climate — plateaued during the “roaring” 1920’s and failed to come back until the 1950’s. The reason: depletion of easy to access local reserves. We did not run out of the black rock, we just simply could not produce more.

Coal is bulky and heavy. Ships transporting it had barely left storage place for goods — hence the golden age of clippers, carrying products around the globe with breakneck speeds. But coal had to be mined and used in place or transported by steam locomotives — consuming a considerable portion of it during the trip. It was not until the 1950's — thanks to an explosive growth in oil production — till it could be transported by diesel ships and mined in large open pit mines (using diesel machinery), further away from the point of use.

Source

Those who follow my blog for a time now, know that energy is the economy. Since coal was the engine of economic growth in the late 19th century its sudden limitation has caused massive problems. It has powered manufacturing plants, transportation, iron and steel production, it was used for cooking, even street lighting (via gasification). Coal was the economy. Without a continuous growth in its supply, there was no way to grow the economy, turn more raw material into goods, or generate more electricity, where hydro-power was not available. 

Is it any wonder then, that hitting limits to coal extraction gave rise to stock market bubbles, leveraged by debt? Hardly. When you cannot invest your profits in productive capacity (since there is no way to power it economically) you go to the casino, known as the stock market. ‘Woo-hoo, there is a hell-of-a-money to be made there!’

Lastly, here is a very important connection between energy use (as share of global consumption) and world power status. What you can see on the chart below is the rise and fall of the British Empire on the back of coal (compare it to per capita coal production above). Coal gave the necessary power to build steel ships (powered by coal), shells, gunpowder, ammunition in vast quantities¹ to build and maintain a hegemonic superpower.

Image credit: Economics from the Top Down

As you can see on the next chart, the situation is absolutely no different when it comes to oil, and to the superpower riding on air superiority fueled by it (kerosene). Running out of cheap and easily accessible oil does not help maintaining that status to say the least. Note, how the last peak (marked by the Dotcom Crash) has been followed by the US invasion of Iraq in an attempt made at securing its oil fields — the source of military as well as economic power (through the petro-dollar scheme). Also note, how replacing conventional oil with rapidly depleting and costly shale oil, did not help at all. It has slowed the decline somewhat, but it is about to re-accelerate once shale ceases to grow for good.

Image credit: Economics from the Top Down

The end of growth

It increasingly looks like that we’ve just hit a limit to world oil extraction. Yes, that oil, the master resource and the source of military hegemony. Sure, there are plenty of petroleum reserves remaining around the globe, but accessing them will take more and more energy, and require more and more oil to be returned into drilling, extraction and transportation. Just like with the case of coal above. 

Behind the scenes, silently, even before hitting an absolute limit to oil extraction, we have already hit peak net energy from oil. Is it any wonder then, that when we’ve hit a peak of conventional (i.e. easy and cheap to access) oil production in 2005, its price skyrocketed, and finally burst the housing bubble in 2008? Remember, no energy — no economy — just stock market speculation.

Source: Art Berman

The Great Depression Vol. II was only barely avoided in 2009. By pouring an unprecedented amount of money on the problem, in the form of QE and zero interest rates, a number of bankruptcies were circumvented. More importantly, but wholly unintentionally, this flood of money has also saved the energy business, by accidentally lighting the last flash in the pan: the shale oil revolution.

Fracked oil and gas was the prime reason behind not having to shut down the economy in the 2010’s — but even this miracle could not last for long. Shale deposits deplete much faster than conventional ones, and as companies run out of sweet spots to drill they have to frantically increase drilling every year just to stay in place. With recent admissions from oil CEO-s, this option is now closed too. Oil companies nowadays focus on returns, and not on increasing production at an ever higher cost — which could be never turned into a profit in a volatile oil market anyway. 

As Bob McNally, a former adviser to President George W Bush — yes, the same man who gave advice to the same Bush who started ‘Operation Iraqi Freedom’ — and who now runs Rapidan Energy Group, told FT:

“If we end up being more thirsty for oil than the prevailing forecasts assume, then we’ve got big problems. It would be an era of economy-wrecking, geopolitically destabilising, boom and bust swings. That’s when you will wish for more shale.”

This is where we are at the moment. Electrification is nowhere near ready to replace oil use: as of today the very devices turning sunlight and wind into power demand oil in every single step of their production from mining to transportation… (Besides failing to address the elephant in the room: resource depletion effecting all raw materials used by this techno-utopia and the killing of the very life support system of the planet, all caused by overshoot, but that’s another story.)

Absent of any viable replacement: i.e. some form of energy wholly independent from oil — but at least as dense, scalable, transportable, easy to store — there is physically no chance to grow the economy, increase mining production, replace the ageing grid and other infrastructure (bridges, dams) and maintain a global military hegemony — all at the same time.

Forced to select from the few options listed above, 10 out of 10 empires chose to maintain military hegemony. Or at least make an attempt at it and fail invariably — leaving nothing but scorched earth behind. ‘Screw the economy, screw the banks, screw the people! We have a world order to save…!’

“War, war never changes.”

Without understanding the critical role of resources and most importantly energy, however, all such attempts result in suicide. This is not to say we could not live a modest, but happy life after world dominance by superpowers is over. The world has still ample resources to provide Earth’s nations with a decent living, but no longer enough to maintain a world spanning empire for any of them².

Until next time,

B

1. Any similarities to the current situation in Europe — and with regards to who has the upper hand in actual reality (not according to Western thinking) — is not a mere coincidence. Coal is still the engine of war. Despite western military thinking, rooted in fighting poor people riding Toyota pickups in low intensity wars, artillery shelling is still the backbone of warfare and the main source of casualties. Those who have the ability to burn more coal to manufacture more tanks and ammunition has the upper hand. Period. Magical thinking and dreaming about air superiority — which simply doesn’t exist in the age of layered air defense systems deployed at scale — won’t help here, only make matters worse by prolonging a war which, in my opinion, could’ve been easily avoided.

2. China has massive internal struggles — peaking coal production and ageing population, among many other things — preventing it from building a new world spanning empire, let alone maintaining it.