Systemic Risk Arising from a Financial System that Requires Growth in a World with Limited Oil Supply

By Gail Tverberg, FCAS, MAAA,

In July of this year, Lloyds of London issued a white paper on the risks of peak oil, noting that we are headed toward a global supply crunch.1 In September, 2010, a paper was published in Energy Policy called “Global oil depletion: A review of the evidence.”2 It concludes, “A peak of conventional oil production before 2030 appears likely, and there is a significant risk of a peak in oil production before 2020.” In other words, the world’s conventional oil production may start declining in not too many years.

It seems to me that if we are in fact reaching limits with respect to oil supply, this should be of considerable concern. We have a financial system that demands economic growth, for reasons that will be discussed later in this paper. At the same time, as we approach limits with respect to oil production, the ability of the world’s economy to grow becomes constrained, because in order for economic growth to occur, we will need to do more and more, with less and less oil.
The conflict of these two forces – a need for economic growth in a world that can no longer provide growing oil supply – sets the financial system up for a systemic risk of collapse. Furthermore, there is significant evidence that the financial problems of 2008 were early signs of this systemic risk affecting the financial system. If oil supply should actually begin to decline in the future, we can expect financial problems of 2008 to return and worsen.


About basicrulesoflife

Year 1935. Interests: Contemporary society problems, quality of life, happiness, understanding and changing ourselves - everything based on scientific evidence.
This entry was posted in Are We doomed?, Common. Bookmark the permalink.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.