The Amazing History Of Oil From 1940 to 2022


Every economic activity is fundamentally nothing but a conversion of one type of energy to another, and money is just a proxy for valuing energy flows

Vaclav Smil

With food you can control people. With oil you can control nations

Henry Kissinger.

Kissinger was wrong. With oil you can control the whole world and this essay will show you how it happened. Oil is the black blood that flows through the veins of the entire world economy. If oil stopped flowing, civilization would be hurled back to the Middle Ages. Oil is therefore the foundation of modern political power, military power, financial power, and imperial power. It has therefore created many of the most significant international events in our recent history. Oil has started too many wars to count, has allowed us to become rich beyond the dreams of our ancestors, has triggered most of our modern economic booms and busts, and has allowed the United States to remain the world’s super-power for 50 years longer than it should have.

How has oil allowed all of this to happen? Simply because it is so energy dense that it gives an average Western citizen the kilojoule/calorie equivalent of 300 Roman slaves working for our pleasure every minute of every day. The fossil fuels, and oil in particular, are the reason we live like Roman emperors.

Decade by decade, this essay will expose the powerful role oil has played in shaping global events since Hitler’s invasion of the Ukraine to Putin’s invasion of the Ukraine. It will explain why oil has created so many rotten dictatorships, why in the 1970’s we saw Israel attack Egypt, then the Arab nations attack Israel, and go on to fund terrorist attacks across Europe in the years afterward. It will explain why the USSR invaded Afghanistan and why Saddam Hussein invaded Iran in the same year, why so many countries go bankrupt after an oil price spike, why we went through the global financial crisis in 2008, why the Arab Spring ripped across the Middle East in 2011, and why Putin has invaded the Ukraine twice in the last decade.

This essay will also tell the story of how oil priced in US dollars, which we call the petrodollar, has given the United States its privileged global power and military might, which it has used relentlessly to enforce its international policies. It will conclude by peering into the future at what may lie ahead for the rest of this decade as the geopolitics of the high oil prices of 2022 and associated inflation are beginning to write a new chapter in world history.

Now let’s begin to put all the pieces of this fascinating jigsaw together.


Without oil, full-scale mechanized warfare such as we saw in World War Two would have been impossible. Oil fueled the war effort of every major power involved, and amplified the war ten-fold to what it would have been two or three generations earlier. Battles over access and control of petroleum resources marked the war’s most important episodes, from the Battle of Stalingrad to the attack on Pearl Harbor.

Adolph Hitler had no domestic oil, but he needed vast amounts of the black gold to run his insatiable war machine. That’s why he invaded Romania and then the Soviet Union. He desperately needed to access the oil fields of Gorgia’s South Caucasus mountains, which just happened to also supply 90% of the USSR’s armed forces. He was only stopped a thousand kilometres short at Stalingrad, killing millions of Ukrainians on his way. Hitler’s need for oil eventually led to the deaths of over 20 million citizens of the USSR and suspicion of Europe still motivates Russia’s leadership to this very today.

Hitler’s famous general, Erwin Rommel, charged across the deserts of North Africa specifically to cut the Suez Canal and deny the allies access to Middle Eastern oil. Hitler wanted that oil for himself. The famous U-Boats of the Germain navy in the North Atlantic were primarily tasked with destroying American oil tankers supplying the allied armies in Western Europe. The vast allied bombing raids on Romania were designed to destroy Hitler’s last remaining oil supply. The strategy worked and the German war machine began to grind to a halt, allowing the D-Day invasion of Normandy to succeed. It would probably have failed if Hitler had ample access to oil. The Battle of the Bulge was Hitler’s last attempt to reach the port of Antwerp and deny the allies access to their oil re-supply lines.

Over in the Pacific, Japan was likewise desperately in need of oil to supply its rapidly industrializing economy, growing military, and Imperialistic ambitions. It saw itself as an equal to the French, Dutch, British and Americans, who all had colonies in Asia. To get the oil Japan needed for its ambitions meant it would have to step on European toes and invade Indonesia. Alarmed by Japan’s aggression, America placed economic sanctions on Japan to counter its activities. In August 1941, President Roosevelt ordered all U.S. oil shipments to Japan to cease. It was a bold move, one designed to pressure Japan to rein in its imperial expansion.

Instead, Japan chose to launch a surprise attack on the United States at Pearl Harbor just four months later. The attack was designed to neutralise Japan’s only threat for their real offensive directed against oil-rich territories in Southeast Asia. Japan occupied the Dutch Indonesian oil fields within six months. The well-recorded path to defeating Japan was to island hop toward their mainland. However, underwater there was a less known strategy at work. American U-boats hunted down Japanese oil shipments wherever they could find them. Unlike the German U-Boat offensive, this one was successful, and Japan was starved of oil. It’s economy and military had both already collapsed and the nation was on its knees before the dropping of the two atomic bombs.

Both Japan and Germany had embarked upon wars of conquest for similar reasons: Access to resources, particularly oil. And it was shortages of oil that had ultimately contributed to the defeat of both nations.


The Bretton Woods conference at the end of the World War Two hammered out a new financial landscape for the post-war world. The USA basically won the war, held almost 20,000 tonnes of gold, and now represented half the global economy. It therefore held the strongest bargaining position. The Americans wanted their dollar to be the world’s reserve currency. John Maynard Keynes, the pre-eminent British economist of the 20th Century, advocated for a neutral reserve currency backed by gold and called the Bancor. The Americans won the argument and the final deal became known as the Bretton Woods Agreement. From henceforth the US dollar was as good as gold and any nation could swap dollars for American gold at US$35 an ounce if they wished. However, the US dollar gold peg was not to last, and it took oil to rescue the American dollar less than 30 years later.

During the 1950’s, oil overtook coal as the primary source of energy for the world’s transport systems (think trains and shipping). In 1964 it overtook coal as a percentage of total global energy consumption. Oil had twice the energy density, it was a liquid, it was abundant, it burnt cleaner, it was easier to move and store, and it was cheaper. It was far more energy dense, it was a liquid, it was abundant, and it was cheaper. Global oil production was 4.3 million barrels a day (mbd) in 1950 but boomed to nearly 20 mpd by 1960. Oil became the single most valuable commodity to mankind in 10 years flat. Global oil production in the post war era was dominated by Western oil corporations who were known as the Seven Sisters, the forerunners of today’s Exxon, Shell, BP and Chevron. They had a stranglehold on almost all world oil trade and dictated its price in the Middle East. America produced all its own oil, but Britain controlled 80% of the growing Middle Eastern oil reserves, the Americans had just 14%. Consequently, this decade also saw the emergence of Arab nationalism as they bristled under neo-colonial control of their oil, which they saw as Allah’s oil gift to the Arabs.

In 1953 the democratically elected Iranian government tried to reign in the affairs of the Anglo-American Oil Company, now called BP, and bring it to account. This resulted in a coup d’état orchestrated by the CIA, the first of many revolutions around the world involving oil. This overthrow of a Middle Eastern democracy was the seed that led later to the Iranian Revolution of 1980, and many of the problems of the Middle East since then. If it wasn’t for oil, one wonders what Iran would look like today?

Over in the USSR, its leaders soon woke up to the potential of oil to give them international leverage against the USA. In 1954 German oil trader Theodore Weisser signed their first oil export contract and within a decade the USSR was the world’s second largest exporter in competition with the Seven Sisters. This launched the USSR on the road to super-power status and largely financed their military spending during the Cold War. Without that oil there would have been no Cold War. The Soviets slowly undermined the monopoly of the Seven Sisters, and launched Weisser’s tiny German oil trading company, Mabanaft, on its way to becoming one of the world’s largest oil trading firms. His little deal in 1954 also marked the tiny beginning of today’s giant international oil trading market.

An often-neglected chapter of the oil revolution is its impact on global food supplies. It was during the 1950’s and 60’s that much of the developed world’s farmers switched from horses to machinery and adopted chemical fertilisers (often made from LNG) for the first time. This supercharged the efficiencies of most farming practices, particularly broadacre cultivation. Global food supply, particularly grain, rose rapidly and along with it rose world population. Paradoxically this resulted in the depopulating of many rural regions as unwanted farm labourers had to move to cities. Oil is therefore the foundational reason why there are now close to 8 billion people on planet earth, and why over half the world’s people now live in urban areas, freed from the life of a peasant farmer.

FROM 1960 TO 1970

The 1960s ushered in the arrival of OPEC, and the catalyst for its birth was an un-negotiated unilateral cut of 7% in the price Standard Oil decided to pay its Middle Eastern oil suppliers. A month later OPEC was born out of a ragtag group of Middle Eastern nations who sought to regain control of their precious resource from the Western corporate oil giants. However, it would be another 13 years before they would finally wrestle control of the global oil price away from the Seven Sisters. As a result, oil continued to trade at very low prices throughout the 1960’s, ranging between just US$1-2 dollars for the entire decade. Nevertheless, under the radar OPEC was slowly beginning to steal world trading volume by working with an emerging cadre of shady international oil traders like Weisser, who had no allegiance to either Western oil giants or Western governments.

In the late 1960’s Israel was also secretly negotiating with Iran to build a pipeline across their territory that would bypass Egypt’s control over Suez Canal oil shipments. As tensions rose Israel launched a surprise strike against Egypt in what was to be called the Six Day War, occupying the Sinai Peninsula so the pipeline would be safe. The Suez Canal was closed for the next 8 years, but Israel got its pipeline.

At the end of the decade the American dollar was still strong, but the Americans were printing aggressively to fund their war in Vietnam. Oil was still very cheap, ending the decade at US$ 1.76. America remained the world’s number one oil producer, and they used oil to pull ahead of the rest of the world. Oil even helped them put a man on the moon in 1969.

Between 1948 and 1970 oil consumption jumped three-fold in the USA, 15-fold in Europe and 100-fold in Japan. The world was booming, had changed forever because of oil, and it was now almost ready to break free of the Seven Sister’s oligarchy. This was the first era in history of rapid global economic growth turbocharged by ultra-cheap energy. But it would not last.

FROM 1970 TO 1980

Everything about the 1970’s looms large in history, and the oil market helped create that history. It would be the decade when Western oil companies finally lost control of global oil markets, when oil as a weapon would cripple the American superpower, when the USA would abandon the gold standard and launch the petrodollar, and when oil would rise from US$2.00 to $40 a barrel, a twenty-fold increase that caused a tsunami of inflation and economic misery that would almost destroy the global economy. Did I miss anything?

American oil production peaked in 1969 after a decade of profligate domestic oil consumption growth. In 1970 they became an oil importer for the first time and began to plug the growing gap between their production and consumption with Middle Eastern oil. Then in 1973 the rulers of the Middle East rebelled against the Seven Sister’s neo-colonial control of their oilfields, and this pushed oil up from US$ 2.00 to $5.00 a barrel. Next, on the 6th of October 1973, Egypt and Syria attacked Israel to reclaim the land they had lost in the 1967 Six Day War. The next week oil was up another 70%. Finally, OPEC threatened to cut supply to America and Europe by 5% a month until Israel capitulated.

This led to the first modern global oil crisis of 1973-4 and the collapse of the Seven Sister’s control over the oil price. From now on oil would be subject to market price fluctuations that would often become painfully dramatic over the next fifty years. The almost twenty-fold increase in the 1970’s oil price destroyed the global economic boom of the previous 20 years, leading to massive global inflation and stagnation. Prices for everything rose in multiples. Strikes for catch-up wage rises were normal. Riots were common. Unemployment decimated economies and the youth of the seventies became radicalised. A decade of economic growth was lost, and my teenage years were spent watching it all unfold on our new black and white television.

The use of oil as a geopolitical weapon by non-Westerners was novel, but the debasement of the American dollar that went along with it really turbocharged the 1970’s debacle. In 1971 Nixon had to take the US dollar off the gold standard as he was printing vast amounts of money to fund his war in Vietnam. European nations like France were calling America’s bluff and swapping American dollars for America’s gold. The Federal Reserve’s stocks of the precious metal were leaving for Europe by the plane load by 1970 and quickly plunged from 20,000 tonnes to 8,000 tonnes.

America was going bankrupt. So it defaulted on its promises to the world to keep its dollar backed by gold. The rest of the world was horrified, and every other Western nation was also forced to go off the gold standard within weeks and also float their currencies. Liberated from the discipline of the gold standard, the Americans then went on a money printing spree, and this left the US dollar in both a free-fall and in desperate need of a new foundation to keep its privileged place as the global reserve currency. The alternative was a drastic cut in American power and wealth.

In a masterstroke of realpolitik, the Americans, under the leadership of Henry Kissinger, reached out to Saudi Arabia, by now the world’s biggest oil exporter, and struck a deal whereby the Saudis would only sell their oil to the world in US dollars. The Americans reciprocally pledged to protect the Saudi royal family from any military threat to their rule. This deal stopped the US dollar from sliding into oblivion because now nations everywhere needed it to buy oil from the Middle East. The dollar went from being as good as gold to being as good as oil and the petrodollar was born. The Americans were now free again to print money without destroying their currency as the world still desperately needed it. The new situation was best summed up by the words of then US Treasury Secretary John Connally when he arrogantly said to the world’s leaders: The dollar is our currency, but it’s your problem.

This is the foundational reason why the whole world has had to build up significant foreign reserves of US dollars over the last half century. We need the US dollar on hand to buy the oil we were importing. This need for US dollar foreign reserves became a snowball of its own and eventually led to the large scale financialization of global assets and currencies that we see everywhere today, and which has funded the American lifestyle via the vast issuance of debt. They issue new dollars for free. We buy them at face value and then use them to buy oil, and everything else!

After the Middle East oil crisis of 1973-74 was finally resolved, the price of oil should have dropped but it just kept rising. There were now more and more US dollars floating around so their value kept dropping and oil kept rising in those shiny new dollars. The instability and rampant inflation this caused led to a revolving door of coups and wars. There were coup d’états in Syria, Uganda, Chile, Ethiopia, Bangladesh, Argentina, Iran, Pakistan, and El Salvador. There were wars in Vietnam, Afghanistan, Angola, Israel, Lebanon, Rhodesia, and of course the ongoing Cold War between the USA and the USSR intensified as the USSR could now afford more weapons thanks to oil.

As the oil price rose so did the aggression of oil producers. Their leaders were now flush with cash for the first time ever and could afford to mess with their neighbours. This is the reason there were so many international terrorist incidents in the early 1970’s initiated by Arab states, and why the USSR invaded Afghanistan and Iraq invaded Iran in 1980. Iran had just gone through an Islamic revolution the year before in part because the oil wealth it was receiving was being squandered on a lavish lifestyle by the Shah, the same man the CIA parachuted in to rule Iran after the CIA coup in 1953. A short time after his billion-dollar party he was overthrown and Iran’s 2,500 year old monarchy was history.

The nation-wide strikes leading up to the Iranian revolution had crippled Iran’s 5.5mbd export oil cash-cow. As a result global oil prices spiked yet again, this time from US$15 to around $40 a barrel by 1980, an insane level at the time. This sent Western interest rates and inflation to 20% a year and destroyed millions of businesses. The Iranian revolution was the first of many future Islamic revolutions that would see the Middle Eastern oil states begin to push the religion of Islam around the world, funded with oil dollars. Saudi Arabia alone has spent well over US$150 billion of its oil wealth funding Islamic expansion globally to this day.

By the end of the 1970’s, even with the benefit of being needed to trade oil, the American dollar had lost so much of its original value that gold, the anti-dollar, had skyrocketed from US$35 to over US$800 an ounce. South American oil importing economies that had linked their currencies to the American dollar collapsed, impoverishing millions, and leading to the infamous South American debt crisis. Inflation ravaged the world’s economies, leading to instability and deadly turf wars in countries from Jamaica to Angola. So many Europeans had been impoverished that their leaders began to plot and plan for the creation of their own currency, which would eventually be called the Euro.

The American head of the Federal Reserve from 1979 to 1987, Paul Volker, was constantly on the end of stern lectures from his European colleagues every time he spoke to them. He was told in no uncertain terms that America had a choice of losing its reserve currency status or crashing its economy to squash the global inflation it had unleashed. Volker wisely chose the latter. The American economy was deliberately flattened by 20% interest rates. Oil demand crashed, and global inflation then crashed. The American dollar has only remained the worlds reserve currency for the last forty years because of Paul Volker and the US dollar’s continued need in the global oil trade.

FROM 1980 TO 1990

With the booming oil price of the 1970’s came a boom in production, and every economist knows that the cure for high prices is always high prices. This new supply combined with the global recession quickly resulted in excess supply, and slow decline in oil prices. By early 1986 prices had collapsed to US$10. The USSR was now grinding to a halt and had to use its vast oil exports to buy food and prop up its ailing economy. By 1990 the USSR had completely run out of money even though it was the world’s second largest oil producer at the time. The once mighty USSR was reduced to borrowing from the Europeans to pay for food. When the Europeans turned the tap off, Communism collapsed within months. Paul Volker’s actions that crashed the oil price a decade before were still rippling out in the most unexpected ways.

The collapse of the USSR liberated all the former Soviet satellite states from tyranny. Some, such as Poland and Lithuania, have prospered as democracies. Others, such as Belarus, Cuba and Moldova have floundered under dictatorships. Another oil exporter, Venezuela, crashed so hard it has been a mess ever since. Mexico lost so much oil revenue it went through a financial crisis in 1982.

The decade of the 1980’s saw OPEC lose its prestige and pricing power as other regions of the world, such as the North Sea, ramped up oil production. Even energy producing American states like Texas floundered. I lived in Dallas in 1988 and when I first arrived, I marveled at a never-ending line of rusting unfinished high-rise buildings all the way from the airport to the city.

Yet this was the decade when oil importers such as the Europeans and the Asian tiger economies were able to flourish once again. Low prices were bad for oil exporters but were a boon for importers. Because of the low oil prices of the 1980’s, there was a subtle but ultimately dramatic drift throughout much of the world toward policies that were more cooperative, outwardly oriented, and market friendly than before. It was the next leg up in globalisation. Sliding oil prices were like a giant tax rebate that just kept giving. As this fresh round of globalisation took off, Japan became its poster child and it boomed till it peaked in 1990. Europe grew faster than America, and there was a lull in global conflict.

With a desperate need to sell oil, some exporters from the Middle East used the shady world of the global oil traders to stitch up deals with the Apartheid regime in South Africa. South Africa paid approximately US$10 billion above market prices for this “moonshine” oil to avoid strict sanctions. Years later the Apartheid foreign minister for 17 years, Pik Botha, admitted that the regime would have collapsed a decade earlier without the secret help of the oil traders.

In a comical footnote to oil’s influence in the 1980’s, it must be mentioned that it was a grant to the Jamaican government from a major global oil trader, Marc Rich, that funded their bobsled team to compete in the 1988 winter Olympics. That’s how we got the classic Disney movie, Cool Runnings.

FROM 1990 TO 2000

The new decade began with Iraq invading Kuwait in 1990, not because of high oil prices, but on the excuse that the Kuwaiti’s were stealing their oil. The truth was that Iraq needed extra oil to pay their US$ 40 billion worth of debts they built up during seven years of war with Iran. Low oil prices were not good for big spending military dictators like Saddam Hussein. The war with Kuwait caused the global oil price to spike briefly when all the oil from both Iraq and its now occupied neighbour was banned from international markets. Months later an international coalition of western armies came over to the Middle East to boot Hussein out of Kuwait. This sent oil 35% lower on the first day of the allied offensive, as everyone now knew who would win. This also sent a clear message to Saudi Arabia that the USA was indeed their friend and was still as good as their word.

As the USSR slowly disintegrated, a low-level KGB operative by the name of Vladimir Putin was left stranded and panicking in East Germany. On December 25, 1991, the Soviet hammer and sickle flag was lowered for the last time over the Kremlin and was replaced by the Russian tricolour. The nations of the former Soviet Union were let go but were in tatters and lived in an economic hell for most of the 1990’s. Cuba euphemistically called it their “Special Period”.

As refineries and factories across the former USSR started to shut down, with no concept of free markets, in swept those western commodity and oil traders. Men like Marc Rich, David and Mark Reuben, Felix Lvov, Mark Duess, and David Issroff who were representing companies such as Glencore, Vitol and Mabanaft. These were the shady commodity middlemen for decades in both oil producers and consumers like Iran, Cuba, South Africa and Venezuela, markets where respectable corporations didn’t dare to deal. They had already been making millions off the old Soviet system’s need to trade with the West, but now sensed they could make billions. Linking up with them were a group of local entrepreneurs who had been building small businesses in the shadow of the inefficient Communist centralized economic system for years. Between this flood of external nous and money laundering experience, and well-connected, street-smart locals, there eventually emerged a class of Russian billionaires we now call the oligarchs with a stranglehold on Russian oil and metals production. They learnt their skills from the global oil traders.

Russia’s economic trauma galvanized Putin to work his way up the political ladder to restore Russian energy as a source of Russian pride, income, and power over the nations nearby. Putin has singularly driven Russia in the direction of oil, gas, and uranium energy dominance as a vehicle of global and military political power ever since. When oil was high, he started wars. When it was low, he behaved himself. Putin would not exist if it were not for Russia’s energy muscle.

Cullen Hendrix from the university of Colorado has quantified this link between oil prices and military aggression. Hendrix found that countries that rely on oil for more than 10% of GDP, are much more likely to become dictatorships, and have a bloated public sector and a withered private sector. They are also two thirds more likely to start a military dispute with other nations when the price of oil doubles from previous levels. Hendrix also found these dictatorships are harder for the international community to punish for their callous disregard for human life because they supply what everyone needs: Think Saudi Arabia, Iraq, Iran, and Russia.

However, the 1990’s as a whole were mostly marked by a sustained low in the oil price, and therefore few oil wars. The Cold War was over, and America had won so proxy wars died down. OPEC countries, desperate for revenue to prop up their welfare states, constantly cheated on their production quotas. Ironically, the low price caused global oil production to surge nearly 12% between 1996 and 1998 as oil producers were desperate to keep the same revenues coming in. Consequently, oil slumped to a miserly US$10 in 1998 as demand suddenly collapsed due to the Asian financial crisis.

Oil importing nations couldn’t believe their luck, while oil exporters started to collapse again. Russia quickly defaulted on its international debts for a second time in a decade, ushering the meteoric rise of Vladimir Putin. The Venezuelan economy was also devastated, leading to the Bolivarian Revolution under the leadership of Hugo Chavez. Western oil companies were either booted out by the new socialist government or quickly left the country. So, despite having the worlds largest oil reserves, Venezuelan oil production has shrunk ever since to virtually nothing today.

FROM 2000 TO 2010

From 1980 to June of 2004, nearly a quarter of a century, the price of a barrel of oil was mostly stable and under US$25 a barrel except for that short spike during Iraq-Kuwaiti war. The dollar might not have been as good as gold, but it was truly as good as oil. This ushered in the longest and most sustained period of economic growth the world had ever seen and living standards shot up across much of the developing world. However, during 2003 the oil price broke out of its trading range. It reached $60 by August 2005, and finally peaked at $147.30 in July 2008. This was due to a confluence of parallel developments.

First, there was soaring demand from Asia, especially newly industrialising China. China’s economy had been growing at 10% a year since 1980. However, in 1993 it was still an oil exporter. Then their economy grew a staggering 400% between 2000 and 2010 by which time China was consuming 15% of global oil supply, equal to the entire output of Saudi Arabia. So, the oil price rose continually to match the increased demand, from US$ 20 in 2001 to $73 by 2006. Second, for the first time ever there was a plateau in global conventional oil production, commonly called Peak Oil at the time, which arrived in 2006 and lasted until 2011. Third, adding fuel to this new and unwelcome oil price fire was a terrible bout of wild financial speculation in the USA and around the world, due to recently deregulated American investment markets and plunging interest rates. This led to a massive global debt binge on real estate speculation which blew up badly.

The US Federal Reserve was again faced with the same dilemma as it was in both 1971 and 1980. Their dollar was under pressure from too much debt, soaring demand for the commodity backing their dollar, and this time also the geological limits of nature. For whatever reason, instead of crushing economic demand again in another Volker-like recession, the Americans were politically lazy and elected to do the opposite. They defended their domestic economy with lower interest rates, and started printing money with abandon, otherwise known as quantitative easing. This unchained their dollar from its peg to oil once and for all. The price of oil doubled in a few short months to US$147, demonstrating once again the outsized impact of American financial policy on the global price of oil, and the world economy.

The dollar-oil peg was now breaking down in the same way the previous dollar-gold peg had broken down. The Federal Reserve went ahead and created $16 trillion dollars by the end of 2009 to save its domestic banks, it’s dollar, and the global banking system from implosion. Fortunately most of the $16 trillion was eventually paid back and wiped from the Fed’s books. In response to this concerning new development by the custodians of the worlds’ reserve currency, the world’s largest holder of US dollar debt, China, declared to the world it would actively move to promote a new world reserve currency that would not depreciate so rapidly against the vast amounts of oil it was importing. Russia and China and other like-minded countries now also started to aggressively divest their US dollar foreign exchange reserves. They wanted a more neutral and secure asset for their savings, so they started buying gold in massive quantities, which itself had risen nearly eight-fold between 2000 and 2011 because of the oil spike, the global debt binge, and the reckless Federal Reserve actions.

Thus, the 2008 oil spike had significant financial ramifications that we are still living with today. Quantitative easing from a number of central banks turned out not to be a one-off event in 2008-9. It has continued almost constantly since they first opened that financial pandoras box. A decade of suppressed global interest rates has been the result, leading to a massive misallocation of capital in areas it should not have gone such as real estate, government debt, vanity projects, the stock market, and renewable energy projects. Yes, you heard that last comment correctly, but more on that later. Money was now it’s cheapest in history and debt everywhere exploded.

Because of this new era of irresponsible American financial policy, de-dollarisation by countries weary of America began in earnest and has been accelerating ever since. Each year, less and less oil is sold in US dollars. China, Russia, and the Eurozone are actively working out ways to use their own currency to buy oil just as the Americans do. More and more countries have also started accumulating gold in preparation for the dreaded day in the future when the American dollar will finally lose its reserve currency status.

Europe’s dream of a rival reserve currency that would allow them to by-pass the US dollar for the purchase of oil became fully operational on a consumer level on January 1st, 2002. Two months earlier Saddam Hussein had announced to the world that he would only be selling oil in Euro’s and was shafting the US dollar. The Americans didn’t take this threat to their reserve currency lying down. On March the 20th 2003, the USA invaded Iraq on false pretenses, eventually executed Hussein, destroyed his regime, tore up all existing oil contracts, and switched all Iraqi oil trade back to US dollars. That’s the real reason for the invasion. All the talk of weapons of mass destruction was a lie to justify the war. The Middle East has been unstable ever since.

Oil not only provides us with mobility, but it also equals tractor fuel and fertiliser, which equals food. This truth was clearly on display when the massive spike in oil prices in 2008 also spiked global farm input costs. This led to a spike in food prices around the world to unprecedented levels, doubling in a year. This then created its own crisis, causing political and economic instability and social unrest in poorer developing nations that imported food, which mainly meant the Middle East, but also the rice growing regions of Asia. There were food riots, food export bans, and price freezes in over 20 countries. It was the forerunner of the Arab Spring.

FROM 2010 TO 2020

The ongoing fear of peak oil was a real and present danger to the global economy and its food supplies at the beginning of the second decade as conventional oil production had been flat since 2006. This protracted supply plateau coincided with a global economic growth rebound from the global financial crisis of 2008-9 that was turbocharged by the unprecedented infrastructure stimulus coming out of China. In fact, China overtook the USA as the world’s largest consumer of oil in 2010. This lethal combination of constrained supply and surging demand quickly saw oil prices rise once again to over US$125 a barrel in April of 2011 and stay high until 2014. This second echo spike was enough to finally smash the weakest links in the oil-based global economy, the brittle dictatorships of the Middle East that had no or little oil and imported a lot of grain

In a classic case of Murphy’s Law in the economic realm, the oil spike coincided with poor harvests in the world’s wheat bowl, the Ukraine and Russia. Wheat provides over 35% of all food calories in the Middle East and was a highly subsidised staple in many Arab countries as part of a social pact whereby Muslim dictators bought civil obedience in exchange for cheap bread. As food prices skyrocketed, the poorest Middle Eastern countries ran out of money. It was a repeat of the collapse of the USSR, but this time because of high oil prices. Wheat prices soared far above their normal levels and people became angry.

Throughout all human history, hunger has always led to social unrest. Just ask Marie Antionette, one of many monarchs who have lost their head over food prices. What was new in the situation in 2008 was the sheer global scale, and the cause was once again oil. Food riots erupted in Tunisia, Egypt, Libya, Yemen, Algeria, Saudi Arabia, Mauritania, Sudan, Jordan, Oman, Morocco, Iraq, Syria, Iran, Uganda, Malawi, and Somalia. Dictatorships in Libya, Yemen, Egypt and Tunisia collapsed. The crisis is now known as the Arab Spring.

Syria deserves special mention as its food riots morphed into civil war and then an ongoing proxy war that involved Iran, Russia, the USA, the Kurds, and Turkey. They were all jostling for power and access to Syria’s oil. Around 10 million Syrians, half the country’s population, ended up in refugee camps outside its borders. A million of those made it into Europe in a massive wave of human desperation in 2016. Conservative politicians in Europe erupted in opposition to this “invasion” and England left the EU in part because of its fear of this migrant horde landing on its shores. And it all started with oil.

The Syrian civil war also gave us a brief glimpse of a murderous new Islamic caliphate called Islamic State. Their swift growth and bloody aggression were only possible by selling oil on the black market to Turkey. They invaded Iraq because they wanted its oil fields. When their access to oil disappeared, so did Islamic State. In their place the Kurds seized some of Iraq’s oil fields and have been able to maintain a de facto independent state ever since.

The rise of Islamic State demonstrated that a major crisis often leads to radical social change. Upset, oppressed, and hungry people lose faith in existing social and religious structures and search for new paradigms to make sense of their world. The twin oil price spikes and the twin food price spikes that led to the rise of Islamic State also led to something completely new happening in the Middle East that was the exact opposite of Islamic State. For the first time in 1,400 years, grass-roots Christianity began to take off at speed inside the Islamic population. At first it was a multitude of tiny independent movements, but the shift gained momentum over the decade, now numbers in the tens of millions, and is growing rapidly. Who knew that oil could make that happen!

As the decade moved on, Russia’s new energy empire was steadily pulling Western Europeans into its spider’s web of gas and oil supply networks. Putin wanted the European Union to become heavily reliant on Russia, and therefore compliant to its international wishes. The Nord Stream gas pipelines became the most high-profile knot tying energy-hungry Europe to Russia, on Russian terms. Germany was particularly enamored with Russian oil and gas, so it is now suffering the most since Putin’s second invasion of the Ukraine in 2022.

But why did Putin invade the Ukraine the first time?

In 2010, massive amounts of both oil and gas were discovered in the East of the Ukraine and in Ukrainian waters of the Black Sea. This meant the Ukrainians were about to become independent of Russian oil and gas and become a competitive supplier to the rest of Europe. This would have destroyed Putin’s plans for domination of European energy supplies. Russia successfully persuaded the newly elected Ukrainian president to renege on a deal already signed with the Europeans. In November 2013, this decision erupted into the 90-day Maidan Square protests that eventually ousted the president. Six months later Russia invaded Eastern Ukraine and the Crimea, confiscating most of the Ukraine’s new oil and gas fields. This was the genesis of the current war between these two countries. Energy was once again driving history: The Americans had previously invaded Iraq to keep control of the petrodollar, and now Putin invaded the Ukraine to keep control of European energy supplies.

The twin oil price spikes of 2008 and 2011, and the ongoing high oil prices through to 2014 created a disaster for some, but also created incredible financial incentives for clever American engineers to generate new sources of oil from within their own lands. Artificially low interest rates for the next decade thanks to the Federal Reserve’s new toy of quantitative easing also gave these oil engineers access to the cheapest capital in history. This was the combination of factors that gave us the huge global supply surge out of America called the shale boom.

It was the shale boom, and only the shale boom, that saved the world from the consequences of peak oil, because conventional oil has basically flatlined since the peak in 2006 to this day. Without this new American technology the world would be a radically different place now, with oil significantly north of US$200 a barrel for over a decade. For all its adverse environmental consequences, the world should thank the Americans for this technological innovation. The shale boom added 9 million barrels a day to global production, close enough to 10%. It was like having Saudi Arabia transformed from camel herders in the desert to its present production levels in a single decade! Nothing like it had been seen before since the great oil boom of the 1950’s. But once again, the cure for high prices was high prices.

The shale boom allowed America to became oil independent for the first time since 1969. The rapid decline in American imports drove down the global price of oil as suppliers had to look for other markets. In June of 2014 oil was still trading above US$100. Six months later it was US$44 a barrel and by January of 2016 it was under US$30 a barrel. For the next six years the price of oil was relatively stable at around US$60 a barrel, Natural gas was also cheap as American gas production surged as part of the shale boom to the point that the USA became the world’s largest exporter of gas. Coal was also cheap, and even nuclear energy was cheap.

The world had never seen this combination of all forms of energy all being cheap at once. The four types of energy just mentioned dropped almost 90% peak to trough over a roughly a decade. The dollar-oil peg was back, and globalisation took off once again in a big way. The boom in cheap air travel and the construction of lots of shiny new five-star international airports during this period is probably the best posterchild of this era of stable and low oil prices.

Saving the planet from the consequences of global warming also went from a fringe political movement to powerfully mainstream during this decade. Oil and other fossil fuels had finally become a problem, not an asset, at least for the planet. Tesla rode this wave of change and was about to become the worlds most valued car company by directly competing with the oil industry with electric cars.

Because of the diversion of oil investment funds into renewable energy, combined with new environmental, social and governance (ESG) regulations, big oil started having a lot of trouble raising capital to invest in, maintain, and grow future production. It was now on the wrong side of history, as well as government tax incentives, quotas, and mandates. Low oil prices didn’t help either. Consequently, global investment in oil and gas production shrank by 60% from 2010 to 2020, and that figure is inflated by all the billions of dollars that went into the shale oil boom. Investment funds migrated across to renewables, never to return. The result was a chronic under-investment in new oil projects that would come back to bite the global economy the next decade.

FROM 2020 TO 2022

The new decade opened with a pandemic. Covid hit, the world stopped, and oil sank to below zero in April 2020 for the first time ever. This was a US$163 drop in 12 years. Covid also led to a large percentage of global oil and gas supply being shut down and this became yet another massive disincentive to invest in future oil production. When we finally did come out of the Covid lockdowns energy demand took off again faster than expected in developing countries. However, uncertainty reigned supreme, so bringing supply back online lagged demand. This mismatch meant that oil prices just kept rising and rising as the world got back on its feet. The oil and gas prices were the mechanism that was trying to balance the recovering market. Oil demand grew by a staggering 5mbd in 2021 on the rebound from Covid and it has now soaked up nearly all existing spare global production capacity. Global oil demand is also now almost back to pre-Covid levels, while China, the USA, and India are now seeing new record demand numbers.

We therefore have new threats on the horizon for this decade that we have never faced before. The biggest one is 4 billion new consumers wanting to spend more on energy and its related products as they urbanise, eat more protein, use fossil fuel transport, and generally make their lives more comfortable. At the same time we are about to reach peak global production and refining capacity by the end of 2022, while the capital needed to boost supply is being diverted into renewables by the power of the ever-growing and legitimate concern over climate change. The largest drawdowns from strategic reserves in history over the last year, combined with the continued backwardation in oil futures (which means buyers now are prepared to pay more than buyers in the future because they are desperate) are sure signs of an undersupplied market. Oil might be bad for the planet, but not being able to eat is bad for humans, especially those in the Middle East. The future therefore does not bode well for oil supply and the global economy. The Washington Post is even starting to warn the world to brace for a coming supply/demand crisis.

Now, a few words about gas, which currently supplies around 24% of global energy needs against oil’s 34%. Gas demand has grown dramatically in the last two decades as its carbon emissions are around half that of oil. But we are now in the midst of a full-blown gas crisis, a crisis which preceded Russia’s invasion of the Ukraine. Global supply simply can no longer keep up with global demand. Because Europe has precious little fossil fuel inside its borders, many energy crises usually begin in this high demand, high import region. Sky-rocketing gas prices were why fertiliser production in both China and Europe started to falter last year. Ammonia (think nitrogen) prices have bolted from under $200 per tonne in 2020 to $1450 this year. Phosphate prices soared from $350 per tonne to over $1000, and potash price has risen from below $200 per tonne at the end of 2020 to almost $900 today. Today’s fertiliser prices are next year’s food prices.


There are a number of recurring themes you will have noticed by now in this essay: Oil is the lifeblood of modern civilisation. Oil moves in dramatic sine waves over decades from extreme highs to extreme lows. Oil is the reason why gold also moves in the same pattern. Oil is the ten thousand tonne foundation of almost all economic activity on the planet. Low oil prices spur great waves of global economic expansion. High oil prices strangle the worlds economies. Oil creates dictatorships, and dictators create wars when the oil price is high. Oil has made the Arab states of the Middle East rich beyond their wildest dreams and allowed them to push their Islamic agenda across the world. Oil is the only reason the USA still has the world’s reserve currency, largest military, and meddles with so many other nations. Oil has resulted in the violent deaths of millions of people. Oil (and coal and gas) is helping to mess with our climate on a scale unknown before. Oil is the only reason the world’s population has been allowed to keep growing to 7.5 billion. Oil spikes create food crises. The list could go on.

So, where do we go from here. For the second time in 20 years, oil supply is once again bumping up against its geological limits, while demand from 7.5 billion humans for new energy supplies never ceases growing. Once again, we are looking at massive fuel, fertiliser, and food shortages in the near future. Once again, we have an energy war on our hands thanks to Vladimir Putin who cleverly is now accepting a 30% discount on his oil if customers pay in gold. The oil importing countries have seen the larges drawdown on their strategic reserves in history in a desperate attempt to keep prices down. The world now extracts some 4.3 billion tonnes of oil per year, worth some US$3 trillion. If the volume of oil extracted each year stops rising then the global economy begins to crack. Wealth is just stored energy. If energy levels drop so does wealth.

New to the mix is the mantra of renewable energy coming to our rescue, but which is draining investment funds from alternative and superior energy sources, not to mention government budgets. For all our effort, renewable energy’s share of total global energy supply has risen just 2% over the last 20 years on the back of over US $2 trillion worth of investment, proving beyond doubt that renewables, principally wind and solar, are not the solution everyone thinks they will be.

So, what is the solution besides a permanent global depression? That is a topic for another day, and the subject of my next essay. Suffice to say that, barring an unexpected and dramatic drop in global oil demand, the remainder of this decade is going to be very, very different to the boom times of the last decade. Oil prices will slowly grind higher, destroying marginal consumption, with little end in sight. This is why Joe Biden is begging the Saudi’s for more oil. He knows a crunch is coming, and now so do you.