The graph suggests strongly that in the worst case the price of oil will rise in a slow and predictable fashion, readily allowing alternatives to be introduced profitably, preventing the need for coercion.
It will also be interesting to see what happens to the peak oil fear-mongering when some of the new US shale gas reserves start coming on line. It turns out that there is a hell of a lot more natural gas available than anyone ever suspected (or at least thought we could get our hands on) and these new techniques have not really been applied outside of the US yet; the geopolitical consequences of potentially large shale gas deposits in Poland could be quite significant.
Natural gas is a very good substitute for most uses of crude oil. Not as good for plastics, but for just about every other purpose it is far better than oil. If oil actually does start to get as scarce as the peak oil proponents suggest I think that the first alternative you are going to see take over is natural gas.
The graph suggests strongly that in the worst case the price of oil will rise in a slow and predictable fashion
Um, no. No, it doesn't. The gap between decreasing production and increasing demand will widen not nearly slow enough to come up with and implement alternatives on the almost unimaginable scale that will be needed. Furthermore, demand for oil is very, very inelastic. That means that the price will increase very fast, even for a small gap.
Unfortunately the graph doesn't take the geopolitics of the situation into account. American oil reserves are long past their peak (about 40 years ago) and we are largely dependent on foreign oil. If demand begins to outstrip supply, what's stopping the Saudis from keeping their oil to themselves? Or better yet, what's stopping them from selling it to China for a much higher price than what American oil companies can bid.
Oil is fungible. As long as the product is sold into the market, it doesn't matter who is purchasing/selling it. So, if Canada were to switch it's contracts to China, then the people who were previously selling to China, would then sell to the US.
The only possible concern would be an embargo, in which countries _refused_ to sell to the US at any price. That would be problematic - but it isn't related to Peak Oil and could occur at any time (and, in fact, has in the past) - see http://en.wikipedia.org/wiki/1973_oil_crisis
No. It's always fungible. Crude oil is crude oil is crude oil.
Now, problems could still arise where many countries refuse to sell to us or where China just buys a bunch of oil and starts a huge strategic petroleum reserve that's mainly meant to give us more of a shortage (but that would get expensive quickly, even for China.). But that has nothing to do with whether oil is fungible.
Fungibility means that it makes no difference if Saudi Arabia decides they won't sell to us and instead sells the 100B barrels/day that they would have sold to us (made up number) to China, and because of that, China buys 100B fewer barrels/day from Canada, who sells that 100B to us instead.
You don't understand. America, for example, needs a minimum amount of oil per day to function.
If oil becomes very scarce, very quickly, then most countries will see it as a strategic resource. They may sell, to be sure, but not at a volume or a price that will ensure a level of functional viability.
This may not happen, of course, but America isn't stupid: it has spent hundreds of billions ensuring that Iraqi oil will be that source when others fail.
Do you see? It's not just a simple matter of being fungible, because all suppliers are also consumers, and the resource has the potential to be strategic, in which case trumps market forces. If suddenly water became scarce, I may not sell to you at any price because I want to ensure that I have enough for me and my family. It doesn't matter that water is the same everywhere -- if everyone feels that way, you're not going to get some at a price or volume of any certainty. Period.
And suddenly, there was oil panic. Because while oil is fungible, that's an attribute of market dynamics. You have 18 suppliers? Great. Oil is fungible. If one won't sell there are 17 more. But what happens if all 18 won't sell?
Without oil, some countries, like America and its military, can't function. That makes it also strategic.
According your logic, the 1973 crisis wouldn't have happened. Yet it did. And it could again. Oil is fungible until it's strategic. End of sentence.
they don't work when we try them on other countries.
Embargoes really only work when we help those that are embargoing us by setting price controls.
We did that in the 70s and it worked like a charm. Normally, the price we would pay would just go up and third countries would sell us the commodity or cartel members would cheat themselves.
The 70s embargoes wouldn't have worked if the US government hadn't shot itself in the foot. We even had shortages of natural gas and ALL of it was coming from the US!
The market works. The law of supply and demand functions, unless the government decides to break it.
How I'm using the term strategic here is to indicate that certain resources, those that are most critical to be able to function, such as water and oil, will not always respond to market forces.
So the flatness of suppliers, that it is fungible, is rendered irrelavent once it becomes critical, because that is an aspect of the market to which it no longer strictly applies.
Your last point is what makes a market. If the oil is worth more to the Chinese than it is to American oil companies, the Saudis ought to sell it to them; whether you're Saudi, Chinese or American, capitalism works the same.
That's a very interesting article from the heart of the American foreign policy establishment. Back in 2002-03 during the runup to the Iraq war, I had long conversations with an office mate trying to figure out what was really going on (the asinine fiction of WMDs being obvious propaganda, ineptly executed at that). One theory that we came up with was that the US were doing it to gain leverage over the Saudis. It's interesting to see that articulated so plainly in the pages of Foreign Policy magazine:
the emergence of Baghdad as a rival to Riyadh
Couldn't have put it better myself!
(I'm not saying that's why, of course. I don't know why. But "it has nothing to do with oil" always struck me as a tad naive, and by "a tad" I mean "maximally".)
