Peak Oil? Sure, Thanks (Knownuthing article on Rankia)

Peak Oil, defined as the maximum point of sustained production, was reached in 2018. Since then, production has remained on a plateau, influenced by rising extraction costs and geopolitical tensions.

The debate surrounding "Peak Oil" often causes confusion. Many believe it is a past event that has already passed, but the reality is more nuanced. The peak was not a momentary occurrence, but rather the point from which global oil production—both crude and condensate—stopped increasing sustainably. According to data, this inflection point occurred in **2018**.

Since the end of that year, average production has remained about **4.5 million barrels per day** below previous levels. This is not a drastic decline, but a stabilization—a "plateau" that experts believe is the true meaning of Peak Oil. The average production over the last decade has been significantly lower than in the preceding three decades, and projections for the 2020s suggest extraction will barely exceed 2010s levels, and might even be lower by the end of the period.

## Geological Reserves Are Not the Limit

Many failed predictions about Peak Oil were based on a purely geological view, considering reserves as the limiting factor. However, reality shows that geological reserves, often manipulated for production quotas, are less relevant than previously thought. While it is true that there is enough oil on the planet to surpass current production, the real issue is that it is increasingly expensive and complex to extract.

The difference between extracting oil in the early 20th century and today is vast. If before drilling in the right spot was enough to see crude oil emerge, nowadays deep drilling and complex techniques like hydraulic fracturing are required to obtain ever-smaller quantities. This pogre increase in extraction cost is a clear indication that we are in the final stages of the oil era.

## Economics Dictates Extraction Pace

The economic principle of diminishing returns is key to understanding Peak Oil. It is like the "low-hanging fruit": initially, invested effort yields great results, but as the most accessible resources are depleted, each new advance requires more ingenuity and resources to achieve a smaller return. In the case of oil, the "low branches" have already been harvested, and the "high branches" are becoming increasingly difficult to reach.

What truly determines how much oil is extracted is not its price, but its extraction cost. Money is a human invention, but extracting oil consumes labor, resources, materials, and energy. For the operation to be profitable, the social benefit must outweigh the extraction cost. When this cost increases, less productive uses of oil become unviable, marginal businesses close, and the economy contracts.

Consider a shopping mall: with cheap gasoline, people come without problem. With expensive gasoline, some clientele leaves, businesses with less foot traffic close, and this in turn further discourages visits, potentially leading to abandonment. Similarly, industries heavily dependent on oil, or whose customers depend on it, suffer when the extraction cost skyrockets. The resulting economic contraction reduces oil demand, but not its extraction cost, which continues to rise.

## Geopolitics Adds Fuel to the Fire

The third factor, geopolitics, further complicates the picture. In a scenario of limited oil production, stronger nations compete to secure their share of the "pie." However, this struggle tends to shrink the pie, fueling a global crisis where everyone loses. Regions facing energy scarcity and possessing great military capacity enter into conflict with resource-rich areas.

Europe, for example, has been engulfed in conflict through its support of Ukraine in its war with Russia. The United States has sought to control Venezuelan reserves and now targets Iran. China, for its part, appears to be adopting a more prudent strategy, focusing on accumulating reserves and diversifying its energy sources.

The confrontation with Iran, in particular, seems like a strategic error. Iran, a theocracy with great resilience and decades of preparation, will not surrender easily. The conflict with Iran has provided this country with the perfect excuse to take control of the Strait of Hormuz, a vital maritime route for oil transport. Even if navigation resumes, it is expected to do so with significant surcharges due to tolls imposed by Iran and Oman.

The destruction of energy infrastructure in the Persian Gulf, or a prolonged war in the region, could plunge the world into an unprecedented energy and economic crisis. The situation is aggravated by the Houthis' control over the Bab-el-Mandeb strait in the Red Sea and the closure of a key oil pipeline for Saudi Arabia. The United States finds itself, once again, in a complex conflict, dragging the world toward an energy crisis that could be the worst in over 50 years.

## Diesel, The Weak Link

There is a consensus among some experts that diesel is the "weak link" in the oil energy chain, being the most limited and essential energy source for our civilization. If the situation in the Middle East and the war in Ukraine continues, restrictions on diesel supply are likely before next summer. This could force many to confront reality and question current energy policies.

The prevailing conditions on the oil plateau generate social discontent, fueling polarization and radicalism, which increases the risk of confrontation. Today's world differs enormously from that of two decades ago, and changes are accelerating. Adapting to a possible economic slowdown caused by reduced oil will be a considerable challenge. While the human species is adaptable, it is always harder to adjust to worse conditions, losing comforts that were once taken for granted.