and expensive challenge. The International Energy Agency estimates that new development will require as much as $8 trillion over the next quarter century. Projects will grow larger and more complex and there is no shortage of geological challenges. 2
But many of the most decisive risks will be what are called “above ground.” The list is long, and they are economic, political, and military: What policies do governments make, what terms do they require, how do they implement their choices, and what is the quality and timeliness of decision making? Do countries provide companies with access to develop resources and do companies gain a license to operate? What is happening to costs in the oil field? What is the relationship between state-owned national oil companies and the traditional international oil companies, and between importing and exporting countries? How stable is a country, and how big are threats from civil war, corruption, and crime? What are the relations between central governments and regions and provinces? What are the threats of war and turmoil in different parts of the world? How vulnerable is the supply system to terrorism?
All of these are significant and sober questions. How they play out—and interact—will do much to determine future levels of production. But these are not issues of physical resources, but of what happens above ground.
Moreover, decision making on the basis of a peak oil view can create risks of its own. Ali Larijani, the speaker of Iran’s parliament, declared that Iran needs its nuclear program because “fossil fuels are coming to an end. We know the expiration date of our reserves.” Such an expectation is surprising coming from a country with the world’s second-largest conventional natural gas reserves and among the world’s largest oil reserves.3
This peak oil theory may seem new. In fact, it has been around for a long time. This is not the first time that the world has run out of oil. It is the fifth. And this time too, as with the previous episode, the peak presumes limited technological innovation and that economics does not really matter.
RUNNING OUT AGAIN—AND AGAIN
The modern oil industry was born in 1859 when “Colonel” Edwin Drake hit oil near the small timber town of Titusville in northwest Pennsylvania. It grew up in the hills and ravines surrounding Titusville in what has become known as the Oil Region. Other production centers also emerged in the late nineteenth century—in the Russian Empire, around Baku, on the Caspian Sea and in the Caucasus; in the Dutch East Indies; and in Galicia, in the Austro-Hungarian Empire. But Pennsylvania was the Saudi Arabia of the day—and then some—supplying Europe and Asia, as well as North America. The primary market for oil its first 40 years was illumination, to provide lighting, replacing whale oil and other fluids used in oil lamps. Petroleum quickly became a global business. John D. Rockefeller became the richest man in the world not because of transportation but because of illumination.
Yet oil flowing up from the earth’s interior was mysterious. Wells might send oil shooting up into the sky and then run dry for reasons no one knew. People began to fear that the oil would run out. The State Geologist of Pennsylvania warned in 1885 that “the amazing exhibition of oil” was only a “temporary and vanishing phenomenon—one which young men will live to see come to its natural end.” That same year, John Archbold, Rockefeller’s partner in Standard Oil, was told that the decline in American production was almost inevitable. Alarmed, he sold some of his Standard Oil shares at a discount. Later, hearing that there might be oil in Oklahoma, he replied, “Why, I’ll drink every gallon produced west of the Mississippi.” Yet not long after, new fields were discovered—in Ohio, Kansas, and then the huge fields of Oklahoma and Texas.4
Those new supplies appeared just in time, for an entirely new source of demand—the automobile—was rapidly replacing the traditional illumination market, which in any event was being crushed by electricity. The arrival of the motor car turned oil from an illuminant into the fuel of mobility.
In 1914 the European nations went to war thinking it would be a short conflict. But World War I turned into the long, arduous, and bloody battle of trench warfare. It also became a mechanized war. The new innovations from the late nineteenth and early twentieth centuries—cars, trucks, and planes—were, more rapidly than anyone had anticipated, pressed into large-scale military service. One of the most important innovations first appeared on the