Since the dawn of the
automobile age at the beginning of the 20th century, oil has guided
the growth of the global economy. The availability of oil and its price have
been a determinant in times of both war and peace. The Allied nations achieved
victory in two world wars in large part because of their ability to dominate
the oil supply. The post-war boom ran on oil that was widely accessible and
reasonably priced. When that supply tightened and became subject to political
manipulation with the formation of OPEC, there was a direct correlation with
slowing growth. This supply and demand relationship between oil and the rest of
the modern economy was the underpinning of a Paradigm: when oil was readily
available the economy could grow; when it became too scarce or expensive, the
economy stalled. Following the end of the Cold War, geopolitics focused on
ensuring access to supplies in the Middle East - the swing producing region
whose output determined marginal cost and price – even at the expense of wars
in Iraq, Kuwait, and Syria and ongoing tensions with Iran. Following the
financial crisis of 2008, the pattern of economic growth began to diverge from
the supply and price of oil. In the emerging New Paradigm, renewable energy,
climate impacts, and new sources of supply from fracking and new discoveries
are the determining factors. Oil and its derivatives remain important but their
close link to economic performance has been broken.
