Petroleum is the most pervasive base resource other than water in the global economy of the 21st century, and as demand is exploding, production is nearing its geological peak, and untenable price increases are hitting a strained economy hard. Oil prices could be in a stagflation lock, unable to readjust to consumers' means, unable to compete as emerging energy sources repeatedly slash development and commercial prices. Whatever factors are at play, crude oil prices have jumped over 900% since 1998, and it looks like production cannot meet global demand.

Security factors, including mounting tensions with Iran, are playing a role in driving prices up, but they are also playing a role in provoking serious thought about how to best speed the shift away from petroleum as a fundamental economic resource. Burning petroleum-based fuels is not only bad for the environment, it is propping up regimes whose legitimacy is questionable by democratic standards and whose record on human rights, transparency and corruption is of serious concern.

After Israeli military exercises that many observers said appeared aimed at practicing for a strike on Iran, the Iranian government said it would "close" the Strait of Hormuz, cutting off perhaps 20% of all global oil exports. Washington says it would move to keep the Strait open, suggesting military confrontation, which in itself would reduce commercial shipping and drive the price of crude still higher.

The New Scientist magazine, in its 28 June 2008 edition, ran a feature on the coming "oil shock", claiming "the real crisis has yet to hit". Quoting the director of Boston University's Center for Energy and Environmental Studies, Cutler Cleveland: "Much of the economic expansion of and growth of the human population in the 20th century is directly tied to the availability of large amounts of cheap oil." Cleveland added that "There isn't a single good or service consumed on the planet, except in rural economies, that doesn't have oil embedded in it. Oil is the lifeblood of the global economy."

The worrying gist of the comments is that, should anything cause a serious interruption in the supply, the global economy would slow down at perhaps unprecedented rates, or worse, enter a period of chaos and collapse. Major organs of the global economy could shut down as they are drained of that "lifeblood", and political and strategic balances could be thrown off kilter or wasted altogether. Supply is not keeping up with the astounding increase
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Oil Shock: How nations can prepare for oil supply interuptions

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in demand, as emerging economies, including the world's two most populous nations (China and India), each with over 1 billion inhabitants, seek ever greater supplies of the lifeblood commodity.

According to the New Scientist report, "In 2005, a group of current and former US government and national security officials were asked to address [the question of a large-scale supply interruption] in a live role-play exercise." Teaming Shell Oil, counter-terrorism specialists and industry analysts, the simulation explored the possibility of a mounting compound disruption of supplies. Over the course of the 2005 simulation, the price of a barrel of crude reached $123.

"Against the recent peak price of $139, that rise would take the cost per barrel to $295," reports Ian Sample for the New Scientist. Speculation due to the dim security outlook would then push the price to $161, which translates to $341.69 when accounting for current prices. Former CIA chief James Woolsey, one of the simulation participants said the scenario explored was "relatively mild compared to what is possible".

As things stand, the International Energy Agency's director for oil markets and emergency preparedness, Didier Houssin, warns "It's hardly conceivable the world could function without oil". The problem is in part due to a lag in production of new technologies and a reliance on political and military clout to ensure that supplies remain relatively constant. With more far-reaching economic markets competing for key resources than ever before, and the global security environment deteriorating at the seams, this dependence is an unsustainable economic vulnerability, with potentially disastrous consequences.

For security reasons as much as for environmental reasons, every nation that can must begin to diversify at wartime speed its prevailing energy sourcing options: the US could power its entire consumer and industrial economy with the immense wind resources of the Great Plains, while many of the world's poorest nations could, if able to build the infrastructure, speed their economic development with state of the art solar farms, freeing them of the volatility of the oil markets and related security risks.

The potential economic and geopolitical fallout of allowing the full-blown "oil shock" to hit lies beyond the furthest horizon of what we can envision, even amid the economic strain of the present situation. The time is now for a major paradigm shift in thought about energy production: how we do it, what the goal is, what the standards are for economic viability, environmental sustainability and security requirements. What may be a coming age of resource-wars (petroleum, water, grain and arable land), means we must move to methods that have no geopolitical fallout built in.