Illuminating the world crisis

So far, oil rules the roost of the planet's energy supplies. The global crisis is closing one economic era and ushering in another. What changes will this bring?

Before this global crisis, the world had an implicit faith in oil. At the end of 2007, it seemed hydrocarbon consumption was set to grow indefinitely. Oil became rooted in our economic life to the extent that no one now remembers how solid the faith in coal and the steam engine was at the turn of the 19th century. Everybody has forgotten that the devastating 1899-1904 economic crisis buried a steam-oriented future, making oil the main energy resource.

In the 20th century, the percentage of oil used in overall energy consumption began climbing. In 1900, it was a mere 3 percent. In 1972, it was equal to 41.5 percent. In 2000, it reached 65 percent and did not stop there. Analysts assured us: by 2030, the share of oil in global energy consumption would rise to 84 percent.

The price of oil peaked on July 11 of this year when a barrel of oil reached $147.27. Oil exporters thought that the price of oil would grow further. After all, politicians and analysts had promised this. By the end of the year, oil was expected to have reached $200 per barrel. But in the summer, oil prices began sliding. By August they had dropped below $115. In October, they hovered around $90 per barrel. Yesterday's optimism has given way to growing worry. The oil corporations are now expecting new inroads into their profits. Oil consumers are uneasy, too. The idea that lower oil costs would relieve the stress in the global economy has proved wrong. Oil prices plummeted along with the planet's stock markets and consumer demand.

Yet only four years ago, consumers were worried about growing demand and growing prices for fossil fuel. The United States and the European Union developed and launched costly projects for the production of biological substitutes for petrol and diesel fuel. Billions were ploughed into the manufacture of biofuels. But growing crops on huge plantations to make bioethanol and biobutanol proved unprofitable, as well as environmentally harmful. In the global context of liquid fuel consumption, biofuels made up only 1.5 percent. The biofuel illusion was shattered when oil became cheaper. Europe was the first to give up growing its share of consumable biofuel to replace oil. Humankind still remains in an energy limbo.

Since the 1969-1982 crisis, the global economy has undergone huge changes. The southern hemisphere has industrialized, with hundreds of millions of peasants becoming factory workers and an army of whitecollar employees manning desks. The volume of world trade has grown, although the U.S. and EU remain the largest buyers; before the crisis they accounted for about 65 percent of world consumption. But industrial outsourcing was already nibbling away at workers' incomes, and precipitated the 2008 crisis.

Producers will have to find a radical way of making their goods cheaper. It is a tall order, and one that will take time. Cutting production costs by cutting labor costs in peripheral countries has run its course. The only way forward is to adopt advanced technologies, which means even higher energy consumption. However, in order to ride the growth curve the global economy needs barrels of cheap energy.

Oil is no solution. The hopes of oil exporting corporations for a resumption of hydrocarbon price growth as economies are re-stabilized are built on sand. Should something like this happen again, the world's economy would plunge once more into a heavy crisis. Unless energy technology makes a quantum leap, the crisis will linger, with consumers left weak-footed, and many goods not finding their buyers. A new energy revolution able to jump-start a solution to the crisis is not impossible. Back in 1899-1904, humankind found a way out of the steam "deadlock" by riding on the oattails of electricity, petrol and diesel engines.

The jury is still out on what energy sources and engines will come to replace current energy generation. Perhaps, nuclear power production has some prospects. The low efficiency of solar cells and their inability to generate mountains of energy leave them little chance for success. Perhaps a solution will be provided by atmospheric electricity. Nothing definite can be said as yet. What is clear is that the crisis is simply bound to produce a revolution in technologies, energy and labor.

Vasily Koltashov is the head of the economic research center at the Institute of Globalization and Social Movements, Moscow.

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