Deglobalization

Posted by Jeff Rubin on October 30th, 2009 under SmallerWorldTags: ,  • 7 Comments

Nothing is shrinking faster these days than global trade. For the first time in decades, world trade volume, the lifeblood of the global economy, is actually falling. And chances are that downsizing is here to stay.

One reason global trade is shrinking is that most major economies have been contracting. Recession-scarred economies will of course recover. They always do. The Chinese economy is already on the mend and in time other economies will also get back on their feet. But unfortunately for an oil-hungry global economy, so too will crude prices — which is not only the real reason the economy tanked in the first place, but also the reason the economy coming out of this recession will be very different than the one that went into it.

Whether we move goods by air, ship, rail or truck, the global economy runs on oil.

And soon that oil is going to cost more than we can afford. Long distance transoceanic trade is about to go the way of the gas-guzzling SUV. Both are relics of an age of cheap oil that no longer exists.

Oil prices are already trading at around $80 per barrel when the red ink hasn’t even dried yet on the deepest postwar recession in the largest oil-consuming economy in the world. If oil is trading at this level when world oil demand has actually fallen this year, where do you think oil prices will be when the world’s energy appetite recovers?

Everyone, from OPEC to the International Energy Agency to the US Department of Energy, now expects that to happen by early next year.

If so, you can expect to see the return of triple-digit oil prices by next spring. And that means that the armada of empty container ships anchored off Southeast Asia are likely to stay exactly where they are.

In tomorrow’s economy, distance will cost money. Globalization was the product of cheap energy. De-globalization is the economic face of triple-digit oil prices. The whole notion of sourcing supply from halfway around the world to save on labor costs will no longer make any commercial sense. From making our own steel to building our own furniture to growing our own food, the soaring cost of oil-fired transport will bring production back home to the local markets it once served.

I’m Jeff Rubin, and I believe your world is about to get a whole lot smaller.

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  • billluchak

    I agree in what your saying about oil, but what will happen to the cost of nat.gas?? Cheap LNG from/to Asia? Where is the price of gas going with all the North American excess.Eg: shale gas discovered to last 100 years. Power ships by burning nat gas in gas turbines instead of oil burning/ or diesel.

  • http://www.planbeconomics.com/ Plan B Economics

    I read and enjoyed your book. I appreciate how difficult it can be to introduce a discontinuous paradigm to people that rely on history to predict the future. I also agree with your arguments.

    Keep up the good work.

  • Radu

    I don't really agree with you. It might happen that the price of crude oil jumps 100 next spring. It may jump 500 next year. In a very short run, sure, we'll have a smaller world trade. But the jump in oil prices, will trigger something else. First, high profits (the result of high prices) will trigger more investment into the oil business – tar sands, ways to extract more than 30-40% of an oil field – which in the long run will reduce the price of oil. It will also trigger investment in other parts of the energy business, solar, hydrogen, whatever. You make a very common mistake thinking oil is irreplaceable. That is the same thing we thought about coal. The world around you is all about energy and its availability on the world market is only a function of price. Sure, prices may even skyrocket. But in the medium-long-run, energy will get cheaper and cheaper unless, of course, governments don't regulate that market to the point where they suffocates it. Everybody is waiting for the oil age to come to an end, because there is “so little oil left in the world”. Well, I'm not sure it is going to happen that way. As far as I remember the stone and bronze ages didn't end because we ran out of stone and bronze…

  • James

    I have worked in the oil and oilsands industry. Folks need to know that the oil we need gets more expensive to extract as each day passes by. The cash costs and capital costs go up and these costs must ultimately be paid in full by the consumer. There is lots of oil, but the targets require massive investment, lots of lead time, lots of complex engineering, and huge numbers of staff to execute the production plans. i live on my grandfather's farm and have seen the rise from human and animal muscle power to gasoline, diesel and jet fuel. i am most happy when i am in my garden with my hoe- Pleasure or future necessity, it matters not to me. I am an Albertan and a survivor of the decades long boom and bust of the oil patch. I have always been ready for anything. Change provides the stimulus to thrive.

  • prof baldwin

    Why do we need oil as a chief source of global energy, when we have Obama's ego ? Obama's ego can power everything, and is a ready 'off the shelf' proven alternative energy source. Unlike wind/solar power which rely on raw materials from sensitive/unstable parts of the world, Obama's ego is a fully home grown domestic solution.

  • Roger

    Have you any thoughts or opinions on the impact of deglobalization on the trends in information technology. On one hand high oil prices would drive people to use technology to avoid travel, telecommuting and such. On the other hand, the rise of online resellers like Amazon has been driven the schlepping stuff long distances.
    Thoughts on how this might work out?

  • Roger

    Have you any thoughts or opinions on the impact of deglobalization on the trends in information technology. On one hand high oil prices would drive people to use technology to avoid travel, telecommuting and such. On the other hand, the rise of online resellers like Amazon has been driven the schlepping stuff long distances.
    Thoughts on how this might work out?