How Inadequate Energy Supply Is Disrupting The World Economy | OilPrice.com

- Jul 04, 2023, 4:00 PM CDT

A common belief is that if the world does not have adequate energy, the result will be high prices. These high prices will allow more fossil fuels to be extracted or will allow renewables to substitute for fossil fuels. Inadequate energy supply of the types the economy requires can be expected to affect the economy in a way that causes it to become “unglued.” The economy will gradually fall apart as infighting becomes more of a problem.

In this speech, Rickover pointed out the importance of fossil fuels to maintain our standard of living and to win wars. It was clear to the military that fossil fuel energy supplies were tremendously important in preventing future problems for the economy.Economies tend to operate in cycles, as illustrated in Figure 1.Secular CyclesThe eight economies analyzed by Turchin and Nefedov moved into a new area or acquired a new energy resource.

Figure 3. Interest rates of 3-month Treasury Bills, 10-year Treasury Securities, and 30-year Fixed Rate Mortgages, based on information of the Federal Reserve of Saint Louis. The combination of Figures 2, 3, and 4 suggests that the world economy has been on shaky ground since 2008. The US economy has been operating with incredibly low interest rates. If the world loses the ability to hide energy problems behind ever-lower interest and ever-higher debt, , many parts of the economy could start coming apart.

On Figure 5, the sum of red and blue areas represents world energy consumption growth by 10-year periods. The blue areas represent population growth percentages during these 10-year periods. The red area is determined by subtraction. It represents the amount of energy consumption growth that is “left over” for growth in standards of living. When growth in energy consumption was inadequate, wars tended to take place, and the collapse of the central government of the Soviet Union took place.

Likewise, the world economy requires a variety of energy products to operate. Substitutions can sometimes be made, but the overall quantity must be sufficient to support the activities of the economy, including providing adequate food and water for the population and ways to transport these items to the population that needs them.

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