“THE second Great Depression may just be round the corner and it will be brought about by an end of the oil age, triggering a long-term decline of all those industries that depend on black gold.”

This prediction was made by Dr Colin Campbell, founder of the London-based Oil Depletion Analysis Centre. His independent research reveals that only 48 per cent of global oil reserves remain extractable in known and ‘yet-to-find’ reserves and based on current projections of oil exploration and consumption, a peak in oil production could arrive as early as next year.

Up until now, studies of “oil peak” - the point at which half of the total known oil reserves are consumed and beyond which extraction goes into an irreversible decline – were based on optimistic assumptions and any forewarning on dwindling oil reserves was not taken seriously because oil supplies have been cheap and plentiful.

These upbeat evaluations of oil reserves have been primarily due to two factors. First, estimating oil reserves is both political and arbitrary; therefore companies seldom report their true findings for commercial reasons.

Second, Opec countries drastically revised upwards their reserves in 1980s in order to win a greater slice of the global oil allocation.

Unsurprisingly, the US Geological Survey (2000) somewhat optimistically stated that recoverable oil reserves were approximately three trillion barrels and peak production will not be reached for another 30 years. As a result, these inflated projections had contributed to a false sense of security amongst policy makers.

However, in the wake of the Iraq war, the rapid economic rise of China and recent record oil prices, the debate has shifted from “if” there is a peak in production to “when” as world oil reserves are being depleted three times as fast as they are being discovered. An indication of this trend is in the recent announcement by Shell of a drop in its reserves as it only found enough oil to replace 25 per cent of its production. This disparity can only have one outcome; there are not sufficient energy resources to meet future oil demand.

If there is uncertainty on the level of reserves, there can be no doubt that global oil demand is surging. The International Energy Agency predicts that global demand could be pushed up by 47 per cent by 2030 as China’s oil consumption, which accounted for a third of extra global demand last year, is expected to double over the next 15 years. Meeting this avaricious demand is almost inconceivable as 90 per cent of known reserves are now in production. In addition, few major discoveries can be made as the whole world has been seismically searched for potential oil reserves.

In view of the emerging evidence Goldman Sachs, projected a “super spike” that could see the oil prices rise to $105 per barrel! The analysis of economists at the investment banks is based on an assumption that oil price will rise as surging global demand continues coupled with a decline in conventional oil supply, thereby requiring much higher prices to bring demand–supply into equilibrium. On the demand-side, the world’s appetite for oil continues to increase as China and India ramp up their growth. Meanwhile, on the supply side, it will take years to compensate for past under-investment in exploration, refining and transportation plus the natural decline in oil reserves.

This massive increase in oil price will have severe implications for the global economy and should change the world in radical and unpredictable ways. One obvious impact is that as cost of essential activities from agriculture to transportation rises, the increased cost of living will render more people into poverty.

In addition, the limited supply of oil and its concentration in certain parts of the world will lead to a scramble for control of oil and its supply routes to the major economic centres. Already first shots are being fired in the battle for control of energy resources as the state owned China National Offshore Oil Corporation made an unsuccessful bid for the American oil giant Unocal.

At the same time, China and Japan fight over the proposed route of a $2.6 billion pipeline from the oil rich Angarsk in Siberia to the Pacific-coast city of Nakhodka.

As the first half of the oil age draws to a close, countries with vast oil resources or strategically placed along the supply routes will wield enormous power in global politics.

Therefore, our government should devise a long term strategy to ensure that Pakistan’s future energy requirements are met. But more importantly, Pakistan should become an active player and not a mere spectator in the Great Game for Oil. This can be achieved by leveraging the country’s unique location, straddling between two of the largest energy markets—India and China— and the greatest energy reservoirs stretching from the Arabian Peninsula across to Turkmenistan.