Losing Our Balance?

Interesting times, indeed. Oil (WTI) closed within one penny of the all-time record closing price of $77.03 last Friday. The markets seem shaken, and suddenly people are realizing that the recent explosion of derivatives may have created as much hidden rigidity as resiliency in our financial markets (as I wrote about here).

Mexico continues to reveal how deep its problems run. After my article on Mexico Collapse sparked quite a conversation on this topic, the meme of Mexico collapse spread quickly (though I don't take credit for that--the situation speaks for itself). One little gem was PEMEX's announcement late Friday that they will probably be out of oil in seven years--out of oil, not just beginning to decline. Notice how this came out on Friday afternoon. This is when you issue a press release when you want to bury a story.

And electricity seems to be a growing problem, at least in the third world (and those areas that the US military has transformed into the same). It is interesting to note that Jay Hanson (of dieoff.org notoriety) has always predicted that it would be electricity, not oil, that would be the actual cause of collapse. This seems quite plausible to me, though I still think that it will be fundamentally driven by declining oil production, with the resulting electricity-grid problems being best understood as an "above ground factor" stemming from oil. Oil is driving metal theft to new highs, which impacts the viability of electrical grids everywhere. Oil and natural gas prices makes it more difficult to maintain fuels for peak-generating capacity. Oil prices breathe life into infrastructure insurgencies everywhere, which repeatedly target electrical grids for their high return on investment.

Take a look, for example, of what has happened to the electrical supply situation in Baghdad, despite the impending success (sarcasm) of the current "surge" by US military forces there:


Ryan Crocker, the U.S. ambassador to Iraq, told the Senate Foreign Relations Committee last week that Baghdad residents could count on only "an hour or two a day" of electricity.

Interestingly, John Robb has picked up on this crisis in electrical grids around the world as a possible point of development for Africa--their grids are becoming so unreliable that African communities have the opportunity to lead the world in innovating a mode of modern civilization without grid electricity, and possibly export any success that they may have to the rest of the world. While I don't see Africa finding a profitable export market for their brand of grid-free living (admittedly, that isn't actually what Robb was suggesting), I do agree with Robb's assessment that we need to learn to build resilient communities--I've written about that, as well.

So, while CNN tells us (literally), "Don't freak out about the Dow," civilization seems to be stumbling on its balance beam at the moment. I called 2006 the "year of the balance beam"--meaning that everything would be fine as long as nothing significant happened. I called 2007 "Trending," as it seems to be the period where trends become clear--and, keeping with the metaphor, the balance beam grows steadily narrower. We are drawing precariously close to losing our balance--arms are flailing and we're collectively making those funny gyrations as we try to stay up. I'm guessing that my previous label for 2008, "Breakout," may have been better termed "Fall Off."

Mexico Collapse?

My article on the Decline of the Mexican Nation-State is now up at The Oil Drum. This comes, as promised, as an update to my New Years prediction that 2007 would see the collapse of the Mexican economy. This article comes on the heels of a very significant--and largely ignored by the MSM--event: a string of rebel attacks on oil infrastructure in Mexico. Significantly, these attacks shut down production at several "just-in-time" production facilities of major international companies such as Honda, Kellogg's, Hershey's, and Nissan. It is not yet clear whether this was the goal of a highly advanced, effects-based targeting plan by these guerrillas, or just luck on their part. However, as the effects from these shut-downs ripple through the logistics chains of these multinationals, the ultimate economic impact of this attack will likely be enormous. The greatest danger is that the rebel group's own evaluation of this new targeting focus drives them to continue a campaign of attacks against oil infrastructure--the significant, if partially unintended, impact of these first attacks will strongly support exactly that conclusion.

The discussion on my article at The Oil Drum is already proving quite interesting, with some particularly important graphs courtesy of Khebab:





From the looks of things, unless something miraculous happens with production out of Chincopec and Ku-Maloob-Zaap fields in the next two years to offset decline in Cantarell, the situation is about to get much worse...

Updates

This summer has been unusually busy for me, but my work issues certainly haven't slowed the flow of oil-driven geopolitics. For just one recent example, see my recent article at The Oil Drum on the strike in Nigeria. Bottom line: news of a strike makes headlines, but the real news is still the inequality-driven infrastructure disruption. The fact that the Nigerian government caved to the unions (modest) demands has had no effect on this underlying problem.

One other situation that I'm following closely, and that I hope to post on shortly, is Mexico. I made the (I thought) bold prediction that Mexico may collapse into a failed state in 2007 at the beginning of this year. Lots of interesting events related to Mexico lately: classic "export-land" declines in their oil sector; mass desertions in their military to the point that the Federal Government can't honestly claim to control several states; constitutional end-runs to try to get foreign investment to prop-up their oil sector; and the failure of any serious immigration legislation in the US. I was probably a year premature in my prediction for Mexico, but the signs are certainly popping up.

Also an article in the works on EROEI, specifically the criticality of aggregate societal EROEI, and a discussion of the difference between "economic collapse" (where reversion to a lower level of societal complexity is actually an economizing process) and "uneconomic collapse" (where EROEI driven reduction in complexity reduce the overall size of the pie, without reducing the burden of complexity within that pie). More to come...