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Maxwell: Oil Scarcity to Cause Political Breakdown and Financial Crisis
Frankly, I am a little surprised to read this report of an interview with Charlie Maxwell. I have discussed with Charlie the possibility that when the global oil supply begins to decline, probably sometime after 2012 or more rapidly after 2014, there could be a crisis in the financial markets. He did not disagree when I suggested that scenario. But his current thinking seems far darker than I had understood it to be.
I do not doubt that he could be quite right. In fact, I have previously discussed the possibility that the price of oil could rise dramatically but that oil related stocks could be decimated along with all other stocks in a financial panic. That scenario is my motivation for holding futures contracts on oil in addition to stocks, as I have discussed.
As you may know, there is a whole "doomer" group of oil commentators. I tend to think they do not sufficiently appreciate the technological changes that will mitigate oil scarcity, such as the 120 mpg car about which there is a recent post on this site. On the other hand, I fully agree with them that there will be dislocations before the world will be able to fully adjust to a new oil scarcity reality. That scenario is discussed in my essay, "It’s the Rapid Transition, Stupid."
In any case, in the interview that is linked above, Charlie speculates on some of the developments that he thinks are likely in the realm of U.S. politics. It is not very pleasant reading. I will now add to my reasons for admiring Mr. Maxwell his willingness to express unpopular opinions in a public forum.
Tags: energy investments
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5 responses so far ↓
1 William Kennedy // Feb 8, 2008 at 9:59 am
I have an oil fired furnace. I am 78, but I very good health. I assume I shouildd go to a heat pump powered by electricity.
2 sczech // Feb 24, 2008 at 8:17 pm
I think the present “subprime credit” crisis is a small tremor of the crisis to hit during the post peak oil world. The problem is that our economic and financial system is based on the idea of eternal economic growth. The enormous levels of debts worldwide are said to be no big deal since future economic growth will pay for these debts many times over. The trouble is that declining oil production necessarily forces declining economic output. The first consequence of a declining economy will be massive debt defaults leading to the devaluation of many financial assets (bonds, but also many stocks). The consequence will be a credit crisis which in effect freezes many security markets. People will flee into the security of tangible assets - not financial assets promising greater wealth in the future.
The concepts of financial assets and peaking oil do not go along very well. How can the wealth stored in conventional financial assets be maintained when the physical economy is collapsing? That is the main question which needs to answered before meaningful peak oil investment can be made. The question is really important since most of the financial wealth accumulated today must disappear in the post peak oil world.
3 Jim Kingsdale // Feb 24, 2008 at 8:49 pm
Thanks for your thoughtful and sobering commentary, sczeck. Another key question - beyond what may constitute a safe haven - is when one should start to move there.
4 William Kennedy // May 23, 2008 at 8:19 am
My post of 2/8 came true. I installed a heat pump with triple the savings of my old a/c compressor . The heat pump works until 40 degress then the oil furnace starts. I have $2200 worh of fuel oil in my tank. I hope that carries me through the 08-09 heating season. The nice thing is the increase in Suncor Energy stocks payed for the conversion. The scary thing is that I believe Maxwell is correct. the politcos are so stuck on preserveing their positions that they are out of touch with any reality. Can you believe they weant to sue OPEC, when they refuse to let our own companies search for oil in this country and its coasts. Just look at the finds Brazil has made. We are an ostrich with our head stuck in the sand.We are very poorly served by our government.
5 Is There an Oil Crisis Looming? @ Royal Dutch Shell plc .com // Jun 4, 2008 at 5:14 am
[…] I am not the first person to make this observation. Skrebowski has said the same thing. Charlie Maxwell has said the same thing. It seems clear that Matt Simmons would agree, as certainly would Boone […]
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