Expensive oil: the end of low cost and globalization
Economist Jeff Rubin predicted that expensive oil would end low-cost globalization. The debate between peak oil and monetary manipulation remains open.
English · Original discussion in Spanish · Published
Expensive oil is burying the low-cost model and the globalization we knew
In 2008, the price of a barrel of oil hit 147 dollars, and economist Jeff Rubin was fired from CIBC for claiming that globalization was unsustainable at that price. Fifteen years later, the debate over whether cheap energy was the pillar of world trade is as alive as ever. Rubin's thesis — "my religion is prices" — held that rising crude costs would make the low-cost model and offshoring unviable.
The oil price as a driver of the global economy
Rubin argued that every modern economic crisis has its origin in the price of crude. Even the subprime mortgages, in his view, were not the cause but a consequence of the assumption that interest rates — like oil — would stay low. "It was always the great driver of prices," he notes. The logic is simple: transport is a key cost in any global supply chain; when it rises, all goods become more expensive and the margins of low cost, based on cutting costs to the minimum, are eroded.
Peak oil vs. monetary manipulation: two opposing views
The debate pits two schools of analysis against each other. On one side, those who argue that the finiteness of resources — the peak oil that Colin Campbell placed in 2010 — is the ultimate cause of rising costs. According to this view, the decline in oil production will force a retreat of globalization and the return of manufacturing to Western countries. On the other side are those who point to monetary expansion as the true engine of inflation and rising crude prices, considering that blaming everything on peak oil is a cover story to hide the manipulations of the financial system.
Low cost and offshoring: a business model doomed to change
Low cost is not just cheap flights: it is a business model based on very thin margins and high turnover. With expensive oil, production and distribution costs rise, and raising prices breaks the very essence of low cost. As the analysis points out, "in a low-margin company, an increase in costs pushes it straight into losses." Offshoring, which took advantage of low wages but came with high logistics costs, loses its purpose when transport becomes more expensive. It is estimated that the barrel would have to exceed 400-500 dollars for manufacturing in the West to become profitable again, although the industrial fabric is today dismantled.
The future nobody wants to see
The debate leaves open questions: will the physical reality of energy limits prevail, or will the system's ability to create money postpone the reckoning? The answer is not unanimous. While some bet on renewables as a solar manna, others point out that vested interests — "four idle nuclear power plants" — are holding back the transition. The only certainty is that the consumption model without transcendence, as low cost was defined, has its days numbered if oil continues its upward path.
Related debates in the forum
In 2008, the price of a barrel of oil hit 147 dollars, and economist Jeff Rubin was fired from CIBC for claiming that globalization was unsustainable at that price. Fifteen years later, the debate over whether cheap energy was the pillar of world trade is as alive as ever. Rubin's thesis — "my religion is prices" — held that rising crude costs would make the low-cost model and offshoring unviable.
The oil price as a driver of the global economy
Rubin argued that every modern economic crisis has its origin in the price of crude. Even the subprime mortgages, in his view, were not the cause but a consequence of the assumption that interest rates — like oil — would stay low. "It was always the great driver of prices," he notes. The logic is simple: transport is a key cost in any global supply chain; when it rises, all goods become more expensive and the margins of low cost, based on cutting costs to the minimum, are eroded.
Peak oil vs. monetary manipulation: two opposing views
The debate pits two schools of analysis against each other. On one side, those who argue that the finiteness of resources — the peak oil that Colin Campbell placed in 2010 — is the ultimate cause of rising costs. According to this view, the decline in oil production will force a retreat of globalization and the return of manufacturing to Western countries. On the other side are those who point to monetary expansion as the true engine of inflation and rising crude prices, considering that blaming everything on peak oil is a cover story to hide the manipulations of the financial system.
Low cost and offshoring: a business model doomed to change
Low cost is not just cheap flights: it is a business model based on very thin margins and high turnover. With expensive oil, production and distribution costs rise, and raising prices breaks the very essence of low cost. As the analysis points out, "in a low-margin company, an increase in costs pushes it straight into losses." Offshoring, which took advantage of low wages but came with high logistics costs, loses its purpose when transport becomes more expensive. It is estimated that the barrel would have to exceed 400-500 dollars for manufacturing in the West to become profitable again, although the industrial fabric is today dismantled.
The future nobody wants to see
The debate leaves open questions: will the physical reality of energy limits prevail, or will the system's ability to create money postpone the reckoning? The answer is not unanimous. While some bet on renewables as a solar manna, others point out that vested interests — "four idle nuclear power plants" — are holding back the transition. The only certainty is that the consumption model without transcendence, as low cost was defined, has its days numbered if oil continues its upward path.
Related debates in the forum
- Post-Keynesianism and resource scarcity (peak oil) · 71 replies
- Antonio Turiel is in his bulking phase · 27 replies
- The hydrocarbon CRISIS is real and imminent. Call it peak oil or whatever you like. · 82 replies
- They want to create another pandemic to postpone the peak oil crash · 17 replies
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (53 replies).
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