The Oil Shock's Consequences: Resilience or Collapse?
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Arthur Berman, commenting on my generally positive review of China’s well-being variables, wrote
I believe China’s more positive trajectory is founded on cheap, imported oil and natural gas supply. The Ukraine and now Iran energy shocks produce a massive vulnerability for China. The global supply chain and trade disruptions from the Iran War will have grave effects on China’s future economic immiseration.
In the ensuing discussion, he referred me to a recent podcast he had on this issue with Nate Hagens, A World On the Precipice: The Last Oil Tanker From the Strait of Hormuz has Arrived – Now What? In this video, and in comments on my post, Berman pointed to the percolating effects of the US/Israel war on Iran on the world energy supply, resulting from the closing of the Straight of Hormuz. The developing oil shortages, in his view, will affect Europe within the next 30 days and the U.S., by July, while China will be severely affected even before the U.S.
A helpful feature of this prediction is that it clearly sets out the time frame — July is only a couple of months in the future, and surely the severe effects will be obvious by the end of the year. However, Berman is a bit vague on how “severe” the outcome will be — is it going to be a “civilizational decline” that will affect the whole world, or only a temporary, if painful, economic and social disruption akin to the Covid Pandemic, which affected some countries more than others?
Arthur Berman is clearly very knowledgeable energy expert, while I am not. I agree with him that the world is about to experience a huge shock, much worse than the 1970s Oil Crisis.
On the other hand, I know something about societal resilience, ability to withstand, and adapt to such shocks. My colleagues and I are on record arguing that it is societal resilience that determines whether an external shock results in “collapse” or “muddling through” followed by adaptation and recovery (see our publication, CRISES AVERTED. How A Few Past Societies Found Adaptive Reforms in the Face of Structural-Demographic Crises.)
My structural-demographic analysis of today’s China suggests that it enjoys a highly resilient political system, which suggests that muddling through is much more likely than the dire consequences suggested by Berman. We now wait to the end of the year, and see which of the two theories makes a more accurate forecast.
This debate is a special application of a much broader question: what is the relative importance of external shocks against internal resilience in explaining societal collapse? Among “collapsologists” the most popular theories point to severe climate shifts. The oft-used examples are the Classic Maya (where prolonged megadroughts supposedly overwhelmed agricultural systems), the Akkadian Empire (felled by a 200-year arid event), and the Norse in Greenland (starved out by the Little Ice Age).
My research team studied many examples of putative collapses driven by climate shocks. Most recently, we developed an empirically-based computational model for the population boom-bust cycles in Neolithic Europe. These were quite severe with whole regions becoming depopulated. But when we estimate the effect of climate worsening on agricultural productivity, we see only 10-15% decline in crops — certainly not enough to result in a complete depopulation of a whole region. The alternative hypothesis, supported by the data and model, is that growing population density results in increasing friction, conflicts, and eventually endemic warfare between farming settlements. This creates a “landscape of fear” inducing people to move to protected areas (such as hills or sea promontories), while large areas, suitable for agriculture, but dangerous to live in, are abandoned. You can read the details in these two publications:
Explaining population booms and busts in Mid-Holocene Europe
Switching to a historical example, one of the worst environmentally-induced disasters, known to us, was the Great Famine of 1315-17, resulting from a series of cold and wet years. This catastrophe resulted in a loss of perhaps 10% of the population in France and England. But it didn’t precipitate societal collapse. That happened in France starting in 1337 with the start of the Hundred Years War, which, as we explain in Secular Cycles, was a classic structural-demographic (SD) crisis. The huge population collapse came later, with the arrival of the Black Death in 1348. But even that disaster explains neither the start, nor the end of the Late Medieval disintegrative period in France. By 1400 the French population was reduced to less than a half of the 1300 peak, but the internal instability went on until 1453, two generations later. Recurrent warfare created “landscapes of fear” in such provinces as Normandy, which lost three-quarters of its population — and population couldn’t increase because they were all huddling within fortified cities and towns and could hardly work the land due to marauding Englishmen and other bandits.
I can multiply these examples (we have a huge databases of historical data), but let’s cut to the chase. Yes, environmental shocks, like severe climate events or pandemics, can deliver massive blows to political systems. But their effects, collapse or adaptation, depend on internal characteristics of the system. The Black Death killed as high proportion of the population of England, as in France. Yet it didn’t result in the collapse of the English state. Instead, the king and nobility adapted — by invading France, gaining peasants there to compensate for the ones they lost in England to the plague, and by generally exporting surplus elites and thus instability across the Channel. It worked well for a century (but then the French put their house in order and kicked out the English in 1453, after which England immediately collapsed into its own disintegrative crisis, the Wars of the Roses).
I am not suggesting that we today should follow this example of “predatory” adaptation. But the general principle rules: when states are in integrative SD phases they tend to be much more resilient to external shocks, because populations are reasonably well-off, elites are relatively unified, and the state is tolerably functional. During the disintegrative phases all those positive factors are not operating, and the result is that an external shock often serves as a triggering event that brings the system down.
My prediction that China will weather the Oil Shock of 2026 reasonably well is based on the SD analysis that strongly suggests that PRC is still well in its integrative phase. This is reflected, among other things, in their pragmatic approach to the global geopolitics. In particular, China is allied with Russia and Iran. China has been already profiting from the Ukraine war by importing cheap Russian oil and gas and that connection is secure.
The big question is what will happen to the oil China imports from the Persian Gulf countries. A possible scenario, which seems increasingly likely, is that Iran will be able to maintain its control of Hormuz, and will allow tankers headed to China to pass through. Whether the US Navy would be able to stop this traffic (or even attempt it), we’ll see in the months ahead. And don’t forget that over the months preceding the conflict, China was aggressively buying, and storing, surplus oil.
Of the other geopolitical players, Russia, of course, will be the main winner. In contrast, the European Union will probably be one of the worst losers. Both Germany and France, the core EU states, are already in a SD crisis. Their states are increasingly dysfunctional. Europe is fighting a proxy war with Russia, and they took the American side in the war against Iran. Given a choice where to send its fossil fuels, Russia and Iran are more likely to favor China than Europe.
The energy policy of Germany provides an excellent illustration of their political elites’ dysfunction. They enter the conflict with Russia, lose the supply of Russian cheap gas, and what do they do next? Abolish the remnants of their nuclear power. Then they restart coal mines (burning coals pumps much more CO2 into atmosphere per unit of energy, compared to methane). All such actions do not inspire confidence in their ability to deal with the Oil Shock.
Finally, I’ve been focusing on oil in this post, but that may not even be the most traumatic shock to the world system. In the view of many analysts (which I share) the loss of fertilizer supplies is much more serious. After all, people can drive less and stay home for summer vacation. But eating less means starvation, which I don’t recommend.