Economic Models Are Overlooking a Looming Diesel Crisis
We are witnessing the early signs of deglobalization: nations are increasingly at odds with each other, and political parties are becoming more disparate. Trump's demands, both domestically and internationally, are causing concern. However, there is a deeper issue that many are missing. A worldwide shortage of diesel and jet fuel is forcing international trade to enter a new downward phase, as depicted in Figure 1.
While international trade grew as a percentage of GDP between the 1960s and 2008, it has since plateaued. The current diesel and jet fuel shortages are causing this percentage to decline to a lower level.
This article aims to delve deeper into the situation. One key conclusion is that conflicts arise from the need to reorganize the global economy to reduce reliance on long-distance international trade.
The world economy operates as a dissipative structure, governed by the laws of physics, which is why it behaves differently from what most researchers assume. Economies, like dissipative structures, can temporarily grow but require energy dissipation to avoid a 'dead' state. This concept is similar to how the human body needs food to stay healthy, and ecosystems require energy from sunlight, warm temperatures, and water.
Academic researchers often work in isolation, creating models that reflect their narrow academic focus. These models may not accurately represent the economy, as they tend to make unwarranted simplifications. For instance, they assume all energy is interchangeable, and substitution is easy and quick. However, the real world doesn't work this way. Ecosystems rely on a mix of resources and predators, and the world economy will face similar changes if the current international transport system encounters issues.
Diesel and jet fuel, primarily used for international transport, must meet specific criteria: high energy density, ease of storage, compatibility with existing infrastructure, and affordability. These fuels have been crucial for international travel and transport, but 'bunker fuel' (heavier and more polluting) is now discouraged due to environmental concerns.
Diesel also plays a vital role in various sectors, including food production and local transport. Most agricultural equipment and heavy semi-trucks rely on diesel, and it's essential for building and maintaining infrastructure like roads, bridges, pipelines, and commercial buildings. However, the price of diesel is challenging to raise for any extended period, as it directly impacts food prices, which can lead to voter dissatisfaction.
The pattern of diesel supply growth provides insight into the challenges facing world trade. The World Trade Organization and the Kyoto Protocol have indirectly encouraged world trade by enabling countries to outsource manufacturing and mining. However, the restriction in diesel supply since 2008 has coincided with the flattening of international trade, as shown in Figure 1.
Several factors contributed to the decline in per-capita diesel supply after 2008: the availability of heavy oil for refining into diesel and jet fuel, the use of hydrocracking to transform long hydrocarbon molecules into shorter ones, price differentials discouraging heavy oil field development, depletion of easily accessible oil, and political issues related to low profitability and tax revenue.
The world order is on the brink of significant change, with the global economic order breaking down to form a new, more sustainable system based on the available diesel and jet fuel. This situation is akin to a game of musical chairs, where players must adapt as chairs are removed, and some must be eliminated. Nations will need to adjust their interactions, with a shift towards assertive leadership and increased conflict.
While the future remains uncertain, the self-organizing world economy is likely to find a solution. However, in the near term, higher levels of conflict due to resource shortages are expected. The author concludes by acknowledging the complexity of the situation and the need for innovative solutions to address the challenges posed by resource shortages.
