Oil: We're addicted

James Buchan has been writing about oil since the 1970s. Here, at a moment when steepling prices, po

A century ago, petroleum - what we call oil - was just an obscure commodity; today it is almost as vital to human existence as water. Oil transports us, powers our machines, warms us and lights us. It clothes us, wraps our food and encases our computers. It gives us medicines, cosmetics, CDs and car tyres. Even those things that are not made from oil are often made with oil, with the energy it gives. Life without oil, in fact, would be so different that it is frightening to contemplate. We are addicted, and it is no comfortable addiction. Like other drugs, oil comes with a baggage of greed, crime and filth. Worse, it is smothering the planet.

The great disadvantage of getting older is to be obliged to relive the salient economic events of one's youth, with nothing learned and nothing forgotten. Soaring prices for crude oil, falling production surpluses, wild speculation in commodities, a rush into the precious metals, turmoil in the Middle East, assertive oil producers: it is 1973-74 all over again, and at dictation speed.

From a low of $16 a barrel in the winter of 2001, the price of crude oil has risen to $75 a barrel. That is a fourfold rise, which mirrors the quadrupling of prices in 1973-74.

Once again, power seems to be shifting towards the energy producers. Hugo Chávez of Venezuela is threatening to cut off oil supplies to the United States precisely as the Arab producers did in response to US support for Israel in the war of October 1973. Iranian ministers and clerics, loudly insisting on their right to enrich uranium, echo the aggressive oil policies of the shah in the early 1970s.

The supply of crude oil has become stretched. Members of the Organisation of Petroleum Exporting Countries (Opec) are thought to be pumping oil within a million barrels a day of their capacity. Iraq, crippled by sanctions in the 1990s and now by sabotage, is producing at only half the level of 1990. The Iranian oil industry, starved of investment since the revolution of 1979, has stagnated. The chief western oil companies, excluded from such rich oil provinces as Saudi Arabia, are liquidating themselves in a sort of slow motion. In the past three years Royal Dutch Shell has identified new reserves to replace less than two-thirds of the oil it has extracted.

Of course, history does not repeat itself, and there are three important differences between the oil crisis of today and 1973-74. This time, the rise in the oil price has yet to be felt in the livelihoods of those men and women who are not stockbrokers. There is not that cocktail of wild inflation and commercial stagnation that made the mid-1970s such a grim period in which to be alive and a Briton.

On 10 May world stock markets fell in anticipation that the world economy was about to disintegrate. That has not yet occurred, and the financial markets have since regained some of their poise. Nobody seems to be driving about any less. That suggests the $70 barrel is much more easily tolerated by the affluent populations of the west than the $12 barrel of 1974. According to the American Petroleum Institute, motor gasoline, even at today's price of $2.90 a gallon, would cost an American motorist less in inflation-adjusted dollars than in 1918.

Habits of thrift

A second difference is that this time there is no widespread appeal for voluntary conservation. In the 1970s there were still habits of energy thrift going back to the Second World War and an acute awareness of the diplomatic risks of dependence on Middle Eastern oil or Soviet gas. In response to the first oil crisis, Washington imposed speed limits of 55mph on highways as a condition for states receiving federal funds for road-building and road repair. (The act was repealed in 1995.) On 21 April 1977, Jimmy Carter spoke of energy conservation as the "moral equivalent of war". In contrast, President George W Bush, in his State of the Union address on 31 January this year, recognised that the US "is addicted to oil, which is often imported from unstable parts of the world". Yet the solution was not, it seems, conservation. "The best way to break this addiction is through technology," he said.

But what technology? All over the west, ministers and public servants are taking down from high shelves the musty alternative technologies of the 1970s. Nuclear power, all but killed off by an accident at the power station at Three Mile Island in Pennsylvania in 1979, has kicked away its tombstone. Even in Britain, where nuclear power has been a tale of misapplied technology and wasted money, the Prime Minister, Tony Blair, has said it is "back on the agenda with a vengeance". Ethanol, an alcohol fuel made by fermenting the sugars in row crops such as wheat, maize or sugar beet, is enjoying a revival.

East Anglian grain farmers, who just a few months ago were contemplating a life counting corn buntings and tree sparrows on fallow field margins, now imagine that they can turn their unwanted crops into industrial fuels. British Sugar, which is building a pilot plant to make bioethanol out of sugar beet at its Wissington factory near King's Lynn, is talking of using wheat as a fuel. The prospect of deliveries to the factory of 30,000 tonnes per week has raised the price of wheat for November 2007 delivery by about £15 a tonne, according to Farmers Weekly.

Fourth horseman of the apocalypse

The last difference is the most important. In the mid-1970s, western publics were anxious about where in the future oil would come from, how much it would cost, and what unfriendly government might control it. A generation further on, a fourth horseman has joined this energy apocalypse, and that is global warming.

The 20th century was the century of oil. It was also the century of warfare, but mainly it was the century of oil. Discoveries of crude oil in the United States and Russia from the 1860s, and the Middle East from the 1890s, set off a revolution in the use of commercialised energy. World economic output in the course of the century multiplied by a factor of roughly 20 and world population rose fourfold. People continued to use coal, and electricity was generated in the second half of the century from nuclear fission, but the decisive contribution came from oil and gas.

Oil made possible great manufacturing operations and transported their produce. For the first time, the world became a connected market. In the west, men and women were gradually freed of the heavy physical labour of the 19th century. The comforts and mobility of the aristocracy were converted into popular commodities and the spectre of revolution, which still haunted the west as late as the 1970s, disappeared. Producer countries, able to dispense with taxation or any contributions from their populations but subser vience, were able to establish welfare despotisms (Iraq, Saudi Arabia) or Potemkin democracies (Russia).

Crude oil is quite complex in its chemistry, but roughly 85 per cent of it is carbon. The consequence of this century of feasting and fighting and going about in cars and aeroplanes has been to deliver into the atmosphere thousands of millions of tonnes of carbon, to the extent that the atmosphere is very different from what it was even in the 19th century. We do not breathe the air that John Clare breathed.

Since the late 1980s scientists have been agreed that the carbon dioxide created in the atmosphere by the burning of fossilised carbon will impede the dispersal of solar energy back into space and is likely to raise the temperature of the earth's surface. What is in dispute is whether that process has begun. We are faced with the first challenge ever delivered indiscriminately to all mankind, and our response has been to try to cap carbon emissions without compromising industrial activity and standards of living. Global warming is not yet a pocketbook issue.

Under a treaty negotiated in Kyoto in Japan in December 1997, 163 countries have promised to reduce their emissions of carbon dioxide and other greenhouse gases to 5 per cent below 1990 levels by 2012. The old 15 states of the European Union have committed to reduce emissions by 8 per cent. The US, the world's largest generator of carbon, has yet to ratify the treaty. Concerned for the US economy and irritated that neither India nor China is required to reduce its emissions, the Bush administration is most unlikely to ratify it.

Instead, Kyoto provides a political justification for favouring other sources of energy over fossil fuels, either through direct subsidy or a system of commercialised carbon credits. The problem here is that the technology of nuclear power has advanced not one inch since the 1970s. No progress has been made on how to dispose of radioactive waste products. With its inflexible technology, the industry faces bankruptcy if the price of electricity falls hard and far. Nuclear plants are vulnerable to terrorists with ambitions far beyond those of the 1970s.

Yet whereas the first two generations of British nuclear stations, and an ill-fated plutonium reactor at Dounreay in Caithness, made a palpable contribution to this country's economic mediocrity in the 1960s and 1970s, that would not be the case now. An off-the-peg pressurised water reactor on a site already sequestered, and polluted for eternity, with the operator subsidised by carbon credits and protected against bankruptcy, would cost less than £2bn. That is the sort of money the government routinely wastes on projects in the health service. If Britain, when it was poor, made bad decisions on energy and environmental issues, just imagine what it will do now it is rich.

Economies of scale

Ethanol is a case in point. Unlike fossil fuels, corn and sugar cane and oil-seed rape do at least absorb carbon by the very process of growing. Yet the fuel needed to grow, reap and transport these energy crops would, in the present state of technology, deliver into the atmosphere almost as much carbon as petroleum. The danger is that a primitive ethanol industry will be absorbed into the existing regimes of agricultural subsidy, such as the EU's Common Agricultural Policy. Against entrenched agrarian interests even Vladimir Putin's Russia, which is proving a much less predictable source of energy than the old Soviet Union, might not look so bad.

As for renewable sources such as wind and water power, they were suited to the well-populated countryside of the 18th and 19th centuries but have yet to be developed on the scale to supply today's urbanised societies. David Cameron's planning application for a wind turbine on the roof of his home in Notting Hill seems a small beginning.

The recent increase in the oil price will, in itself, make available extra oil. That happens from both directions. The higher price will make it worth recovering parcels of orphaned oil from, say, old and depleted fields in the North Sea, which were too expensive to extract when the price was $20 a barrel. Higher prices also cause involuntary conservation as people choose to use less fuel or businesses move into less energy-intensive industries. The oil shock of the 1970s reduced demand and brought on extra supply with the result that the price fell to $10 in 1986.

Of the 20 million barrels a day of additional crude oil that have become available since then, about 14 million have gone to the developing world. The rise in crude-oil prices from their trough in 2001 was due largely to demand from Asia, and particularly India and China, which appear to be poised to regain the position in world trade they enjoyed before the disruptions of the colonial era. If India and China and other countries in the developing world used petroleum at the rate of the rich member countries of the Organisation for Economic Co-operation and Development, world consumption of oil would be not today's 80 million barrels a day but 240 million.

It is possible that President Bush's technology will come to the rescue. It is possible that some mechanism will be discovered to break the link between energy use and prosperity. It is also possible that the most desperate oil addicts, like ordinary junkies, will take to thieving. In embracing petroleum so comprehensively in the 20th century, humanity confounded freedom with mobility and may end up without either.

James Buchan's "Adam Smith and the Pursuit of Perfect Liberty" is published by Profile (£14.99)

Petroleum by numbers

amount China's oil consumption is expected to grow per year for the next 20 years

millions of extra cars on the road if China, India and Indonesia reach average global car ownership

increase in global consumption of oil since 1965

increase in greenhouse-gas emissions from aircraft during the past decade