Is a perfect storm building?

While the latest Interim Economic Assessment of the Organisation for Economic Cooperation and Development (OECD) found that the world’s economic recovery may be slowing faster than previously anticipated, a leaked report from Germany and reports from the UK paint a picture of a world running scared that it is about to be hit by a perfect storm which could dramatically change the world as we know it.

The elements of this feared perfect storm are:

• Peak oil demand;
• Accelerating climate change;
• A financial crisis leading to a lingering recession;
• A sovereign debt crisis; and
• Ageing populations in developed countries but overpopulation in the developing world.

And these are merely the more prominent weather patterns in the affairs of man which seem to be converging to create that perfect storm.

There are economists and commentators who go as far as to say it could end life as we know it. The more optimistic of them say there will be seismic changes on all fronts of human endeavour.

On South Africa’s Youth Day, 16 June of this year, the president of the European Union, Jose Manuel Barroso, warned that democracy would collapse in three young democracies, Greece, Spain and Portugal. All three, which became democracies only in the 1970s were assessed to be close to implosion.

Now that the world seems to have to brace itself for the next stage of the global financial crisis comes a scary report from  the Bunderwehr Transformation Centre, a think tank operating inside the German military establishment. It states that there is “some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later,” which in broad historical terms means it is at hand.

According to this report, which came into the hands of Der Spiegel late last month, the shrinking global oil supplies will threaten the world’s economic foundations and possibly lead to mass upheaval within the next 15 to 30 years. Democracy itself could come under threat.

From the UK come reports by among others The Guardian that the Department of Energy and Climate Change is trying to keep secret the fact that the UK is much more concerned about a possible oil supply crisis than it is letting on. The British government is reportedly canvassing leading scientists and industrialists for their advice on how to build a contingency plan for peak oil.

The German report warns that shrinking global oil supplies will threaten the world’s economic foundations and could lead to large-scale upheavals within the next decade and a half.

It sketches a scenario where international trade would suffer as the cost of transporting goods across oceans would soar, resulting in shortages in the supply of vital goods. The result would be the collapse of the industrial supply chain in a highly integrated global economy with the resultant collapse of the global economic system and every market-oriented national economy.

We could see many countries abandon free market principles. Deals would be struck between oil-exporting and oil-importing countries that would fix prices and remove large quantities of oil from the global markets. “The proportion of oil traded on the global, freely accessible oil market will diminish as more oil is traded through bi-national contracts,” the report states.

Some observers argue that this process might in fact already have started, pointing to the fact that countries like Russia, Turkey and Brazil have broken international ranks on the issue of Iran because of such bilateral agreements and cooperation.

Not only international organisations could come under tremendous pressure, but the economic crisis caused by shrinking oil supplies and hardships caused by austerity measures in the wake of the financial- and sovereign debts crises could see populations turn against their governments.

It is also not only in countries like Greece where protests over austerity measures are seen. At the time of writing this report, the UK was suffering the massive inconvenience of a strike by London Underground workers in a dispute over job cuts they claim will hit service and safety. On the other side of the channel French workers launched a day of mass protest against president Nicolas Sarkozy’s plan to raise the retirement age as part of a wider pension overhaul aimed at reducing the public deficit and preserving the country’s credit rating.

The German report states that public anger at the existing system would create room for ideological and extremist alternatives to existing forms of government. Populations would fragment along political lines and in extreme cases it could lead to open conflict.

Earlier this year a report from the United States Joint Forces Command stated that it is estimated that by the 2030s the demand for oil will be nearly 50% greater than today. To meet that demand, even assuming more effective conservation measures, the world would need to add roughly the equivalent of Saudi Arabia’s current energy production every seven years.

In the September 8 edition of the newsletter Energy & Capital, which offers investment analysis “of the New Energy Economy”, economist Jeff Rubin points out that there are frequent news stories on discoveries of major oil reservoirs in the Gulf of Mexico and elsewhere, in contrast with the lack of reporting on massive, decades-old oilfields drying up.

According to Rubin, the world loses four million barrels of crude oil production every day “but we don’t hear much about it”. The report  goes on to state that “we could easily see the return of $100 oil in just months”.

It is important to note that not everyone agrees that peak oil is a reality. They point out that predictions on peak oil have been made since the 1950s. The date was originally pegged at around 1995.

But, as concerns or even fears for energy security are clearly growing  worldwide, alternative and particularly renewable energy sources are rapidly moving into the mainstream economy. In that there are also opportunities.

Recently, the website AltProfits.com – under the heading, "Profiting from the alternative energy revolution” – declared that: “Alternative energy is the biggest business revolution of our times.”

It is reported that according to market studies investment in renewable energy is growing at 45% per year, essentially doubling every two years -- and the rate is expected to increase. Whether it will grow fast enough and industrial processes and other economic activities and lifestyles will adapt fast enough for life as we know it to survive only time will tell.