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Jeff Rubin, former Chief Economist
at CIBC World Markets for twenty years, explains Soaring
Oil Prices A Double-Edged Sword in the Middle East.
Why is the
Arab world convulsing with social and political unrest when triple digit oil
prices should be bringing enormous wealth to the region? The answer may be
that the link between energy inputs and food prices suddenly makes soaring
oil prices a double-edged sword in the world’s largest food importing
region.
Egyptians are about to find out that it is a lot easier to eradicate your
local dictator than feeding your population. The crush of poverty is felt
under the weight of a population of 80 million people who live in a country
where average annual rainfall is less than two inches and where only 3% of
the land is arable. Aside from a narrow strip along the life-sustaining Nile
River, Egypt is basically an inhospitable desert.
Yet the population of Egypt has tripled to 80 million today from 27 million
in the early 1960s. While the birth rate for an average Egyptian woman has
fallen from six children to just over three, it still fuels more than 2%
annual growth in the population. At this pace, Egypt’s population will
double to 160 million by 2050.
But the country is already importing 40% of its food supply and 60% of its
grain. Even a brutally repressive regime like Hosni Mubarak’s still
spent 7% of the country’s GDP on food and energy subsidies. Can a
replacement regime afford to spend more?
Not likely, particularly when the country’s oil production peaked in
1996 and has subsequently declined by 30%. Oil exports are down 50% thanks to
strong demand for its subsidized fuel.
The problem facing Arab countries today is higher oil prices feed directly into
higher food prices. While oil may be massively subsidized in the Middle East,
it’s not in major grain exporting countries such as Canada, Russia and
Australia that Arab nations increasingly count on for their food supply.
From the diesel fuel that runs tractors and combines to the power needed to
pump water through irrigation systems, modern agriculture is one of the most
energy intensive industries. And the Middle East is the largest food
importing region of the world. As the price of oil goes up, so does the price
of food imports.
Egypt’s problems feeding runaway population growth is not unique to the
region.. They are in evidence throughout the Middle
East given the masses now out in the streets in Libya, Algeria, Yemen, Jordan
and Bahrain demanding regime change. Could Saudi Arabia be next?
Population growth in the Middle East is rapidly outstripping the carrying
capacity of the land. Democratic reform may be what is on the
protestors’ lips but demographic reform is at the heart of the
region’s problems.
Oil
and the End of Globalization
Jeff Rubin left his position at CIBC World Markets to write a book and
promote his ideas.
I have not yet read Why
Your World Is About To Get A Whole Lot Smaller , so I cannot specifically endorse it.
However, I can say that understanding the implications of peak oil and
booming population growth in the Mid-East, India, and Asia, in conjunction
with aging demographics in the Western economies and Japan are crucial to
understanding major investment themes and world economic growth assumptions.
I have long held the position that perpetual 7 -10% growth assumptions for
China are impossible because of peak oil constraints.
Yet China bulls persist. They see the growth, but not the fraud or the malinvestment it takes for China to achieve those growth
estimates.
I talked about fraud in China as well as unsustainable growth on a number of
occasions.
Here
are a few links.
·
Speculation,
Investment Scandals, Fraud, and China's Hard Landing; Miracle of Chinese
High-Speed Rail will be Reduced to Dust; Peak Oil Doomsday Clock
·
Implosion
of the China "Fabric City" Frenzy
·
10
Signs of Speculative Mania in China
·
Email
from a Chinese on China's Real Estate Bubble
Peak Everything?
My friend BC writes ...
If one wants to identify a single
underlying causal factor for "Peak Everything" and the global
intractable structural effects flowing from it, population overshoot is it.
However, population growth is the last taboo subject no one dares discuss
because, frankly, there is only one highly unpalatable solution.
Peak Oil is increasingly a hot topic of late (the point of mass-social
recognition is nearing, or here). Yet, peak oil
exports from oil-producing countries is the next milestone to await, as these
countries now face exploding populations of hungry young men in need of employment
from domestic investment and efforts to prevent per capita output from
collapsing.
Net energy returns per capita are already collapsing for many or most of
these countries at or near peak oil production, with the oil they produce
needed to supply not only the US and EU but the runaway growth of demand in
China-Asia and increasingly their own populations.
In Egypt, per capita oil production has collapsed nearly 50% since '96, and
33% since 2000. A similar situation occurred in the US, except it took 25
years in the US compared to Egypt's 14.
At the current trend, assuming no increasing rate of deceleration, by '16-'22
Egypt's per capita oil production will have fallen 60-70%, which puts the
country on course for certain collapse.
What we are seeing today with the uprising and overthrow of the Egyptian
government is just the first phase of a collapse that will likely be
replicated throughout North Africa, the Mid-East, Central Asia, and
eventually to parts of India, China, Indonesia, and elsewhere in the world
where population overshoot is now extreme and net energy per capita is
falling or collapsing.
A little known fact is that Mexico's oil production is down 25-30% from the
peak in '03-'04, which is an average rate of decline of 5.4%/yr. and 6.5%/yr.
per capita. This translates into a 33% per capita decline in oil production
in just 6 years, a rate of decline that actually exceeds Egypt's per capita
rate of decline of oil production.
This rate of decline of production has cut Mexico's exports roughly by 35%
since the export peak. At the trend rate of oil production and domestic
consumption, Mexico could become a net oil importer as soon as '15-'18. And
Mexico is the second-largest supplier of imported oil to the US behind
Canada.
Consider, then, where per capita oil production, net energy, and GDP are
headed in Mexico, and what it implies for countries of Central and parts of
South America, as well as potential increasing immigration to the US from
Mexico.
This is grim information to ponder, which should be no surprise why few want
to address it.
Those are sobering thoughts indeed. History suggests
massive conflicts if the above analysis is anywhere close to being correct.
Mish
GlobalEconomicAnalysis.blogspot.com
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Mish's Global Economic Trend Analysis
Thoughts
on the great inflation/deflation/stagflation debate as well as discussions on
gold, silver, currencies, interest rates, and policy decisions that affect
the global markets.
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