The Spectres of Peak Conventional Oil and Stagflation

Abstract

From 2001 to mid-2008 the price of oil rose from around $25 a barrel to around $150. This escalation of oil prices reflected both new demand in a world where the Chinese and Indian economies were enjoying high levels of growth and the apparent stagnation of conventional oil production from 2005. The ensuing difficulties of high-cost oil were exacerbated by the weakness of the dollar in a world in which the US in the first half of the decade had turned to China as a structural creditor and by increased volatility in oil markets as those markets became increasingly subject to speculative capital flows. The consequence of these pressures was a cumulative set of macro-economic and geo-political difficulties for western states. These macro-economic difficulties were central to the recessions that began in western economies in 2007–08 even whilst central banks focused as much attention on the inflationary pressure the oil price rise created. Meanwhile the geo-political difficulties left the US increasingly unable to exercise influence in the Middle East where the majority of the world’s conventional oil supply remained. In this sense the 2008 economic crisis was much more than a crisis generated by western financial sectors. It was also a crisis arising from the resource basis of western economies.