As the turmoil in the Middle East escalates, continuously bumping up the price of energy, it is having a further knock-on effect on the price of other natural resources as well as food. Let’s not forget that the Middle East turmoil was primarily triggered by high food prices, inflation, and youth unemployment.
Given the backdrop of recovery from massive financial turmoil less than a year ago, the fragility of the global economic environment is such that growth trajectories are likely to falter if the price of oil heads toward the $150-$200 per barrel bracket.
There is a high probability that the above scenario could take place in the months ahead. Why? What runs common between Tunisia, Egypt, Libya, Yemen, Syria, Bahrain, and other Middle East countries experiencing various flavours of the Jasmine revolution and civil conflict? Why are Saudi Arabia, Iran, Kuwait, Qatar and other oil producing emirates of the UAE in a similar position? The answer lies in the demographic youth bulge, which manifests itself amongst both Sunni and Shia peoples, and it represents a high proportion of the collective population in the Middle East which is below the age of 20. What is the main concern in the West about the Middle East tinder box? The price of energy. When all is said and done, the key question which senior executives ask the ATCA 5000 is the following: What is the end game?
The Exponential Function
When we examine the asymmetric threats facing humanity in the short-term, it becomes clear that major challenges — whether local, national, or international — are all tied together by the exponential function. A lack of appreciation for what exponential increase really means leads our society to be disastrously sluggish in acting on critical issues.
Believe it or not, our great survival struggle — manifest via demographics, energy and the end game — is about understanding the practical meaning and effects of the exponential function. The complexity which is created by the exponential function over time can lead to extremely high probability-high impact events that began a long time ago, like a small dot or speck of dust, and have been dismissed as low probability events in corporate board rooms and government cabinet offices.
What is the Exponential Function?
Simply put, the exponential function means growing like this: 1, 2, 4, 8, 16 and 32. Doubling, doubling again and then doubling again and again. Everyone surely understands that? Yes, at a theoretical level, and No, at a practical level.
For example: suppose one agrees to eat one almond on the first day of the month, two almonds on the second, four almonds on the third, eight almonds on the fourth, and keeps doubling them every day. How long can one keep going? How long will a pound of almonds last? The first pound of almonds will be gone on the ninth day as one eats the remaining half of the pound. On the tenth day, one will eat a whole new pound of almonds. By the fifteenth day, one will be expected to eat 32 pounds of almonds! One will have to eat roughly one’s own weight in almonds by the 17th day! On the 21st day the total will have risen to one ton, roughly the weight of a car; and by the end of the month, assuming a 30-day month, it will be 500 tons, or the weight of a ship! Welcome to the cumulative impact of the exponential function which is visible in demographics, energy, other natural resources and the end game.
Impact on Demographics
The human population of Earth reached 1 billion in 1804, 2 billion in 1927, 3 billion in 1959, 4 billion in 1974, 5 billion in late 1986 and 6 billion in late 1999. We are presently on the cusp of 7 billion. At this level of population we are consuming around 2 planets worth of resources even though more than 1 billion live in abject poverty. Mexico, with a population of 107 million and a doubling time of 70 years, will, if it keeps that up, grow to 214 million in seven decades. That’s nothing compared to Kenya, which has a doubling time of 26 years. If Kenya goes on growing at its present rate, in 70 years there will be roughly three Kenyans for every one alive today!
Impact on Energy Capacity and Consumption
Until the 1970s world oil consumption was growing at seven per cent per year. That means doubling every 10 years. The doubling time of anything growing exponentially is 70 divided by its annual growth rate — 70 divided by seven per cent is a 10-year doubling time. Every 10 years we used as much oil as we had used in all previous history. Every 10 years we had to go out and discover as much oil as we had ever discovered before — and then, to keep going, discover twice that much in the next 10 years. We didn’t keep going after 1970 because we couldn’t have. In 1973, there was a massive oil shock and that global economic crisis began to alter consumption behaviour.
Since then, per capita oil consumption in the US — which reached a peak in 1978 — has fallen by 20 per cent from that level. As a result, there’s still plenty of oil around at present, but we’ve been burning it faster than we’ve been discovering it for 20 years now because of the arrival of China, India and other emerging countries as major consumers of oil alongside the G7 and other developed nations. It is well known that we have around a 1,000 years’ worth of coal left. However, if we burn 7 per cent more of it each year than the year before — which we may well do post the Fukushima nuclear crisis in Japan and substituting coal for the disappearing oil — it will last just 60+ years, and it will bring on global climate chaos much faster than even the worst case scenario projections.
The End Game
One doesn’t get much reaction time when problems grow exponentially and come closer to the end game. This is where we have arrived now. An old French riddle illustrates the point: suppose one owns a pond on which a water lily is growing. The lily doubles in size each day. If the lily were allowed to grow unchecked, it would completely cover the pond in 30 days, choking off other forms of life in the water. For a long time the plant is almost invisible, and so one decides not to worry about cutting it back until it covers half the pond. On what day will that be? On the 20-ninth day! To solve the problem of a complete covering of the pond, now only one day is left!
We are emitting carbon dioxide and several other greenhouse gases in the atmosphere exponentially. We are clearing tropical rain forest at an exponential rate. The human population is growing exponentially. Human energy use, human production of synthetic products, chemicals, deserts and rubbish are growing exponentially. Many national economies are growing exponentially in terms of x per cent GDP growth per annum, and we cheer them on, although a worldwide economic growth rate of, say, 3.5 per cent per year means another whole industrial world is added to this one in just two decades! We can’t keep it up. If all interlocutors truly understood the consequences of exponential growth, we would have no differences of opinion, no conflicts of interest, within the one world united point-of-view. This is clearly not the case at present.
There is a medium to high probability that the demographic youth bulge in the Middle East will cause the present turmoil to spread to some key oil producing countries at some stage in the near future. The consequences of this will be a rise in the price of oil to $150-$200 per barrel. As a result, global demand for all manner of products and services will fall dramatically as the spending power is eroded swiftly to pay for fuel and food amongst other essentials. With the prospect of negative growth looming and unemployment rising, the consequences will not be benign for nation states and their economies as well as the debt pyramid at the sovereign, corporate and individual levels of society.
All these interlinked tensions will be further exacerbated by the speed, severity, synchronicity and scale of the colossal impact which high oil prices will deliver. This may cascade into regional, national and international crises and conflicts by way of an extended end game. The key question remains: How to build the escape velocity needed to break free from the current gravitational pull of influences that limit the capacities of leadership in governments and corporations to plan for such internal and external crises and conflicts? The only immediate solution is to educate one and all on the practical relevance and power of the exponential function as it applies to demographics, energy and the end game so that conservation of resources becomes an essential mantra and modus operandi. The energy efficient will be the only ones able to survive, and only just.
The human tendency is to focus on technological solutions but what may be necessary in the present context, given that the time left is so limited, is a fundamental rethink in regard to the resource-hungry lifestyles we all lead.