Peak-oil theory and its development implications

The most controversial book of the decade concerning the Middle East is not to do with religion or terrorism. It is Matthew Simmons book 'Twilight in the Desert: the coming Saudi Oil Shock and the World Economy'.

However, like most controversial tomes its message has been so distorted and taken out of context that important points are overlooked. So what is the thesis that Houston-based investment banker Mr. Simmons propounds?

In a nutshell, he has examined over 200 professional papers covering more than five decades of Saudi oil production and concludes that this great natural resource will not last forever. He can not give a precise date for when oil production will peak but points to numerous examples around the world of major oilfields and a pattern of peaking production followed by decline.

Oil price hike

But in his conclusion Mr. Simmons outlines a likely scenario that would follow such a change in production output. Oil prices would soar, challenging economic growth in consumer countries but protecting oil producing countries from the impact of falling revenues.

He believes that this would provide oil producers will a last chance to diversify their economies. But oil would not run out. Indeed, the higher price would switch the focus of production to smaller fields and make secondary and tertiary extraction programs viable. Gas production would also increase.

Therefore, any notion that the peak oil theory means a financial disaster for the Middle East and an end to energy production is actually refuted in the controversial book that caused all the fuss in the first place. Clearly the main problem of peak-oil would be for the consumer nations faced with a sudden escalation of oil prices and an energy crisis of major proportions.

Data transparency

Mr. Simmons main demand is that oil producer countries publish all of the data available on their oil fields and face up to reality rather than being concerned to maintain a facade that can only make the eventual impact of the decline of oil production that much stronger. Besides, if the opponents of peak-oil are correct then greater transparency of data will support their case, and this controversial theory can be finally dismissed.

If Mr. Simmons is right and there is little additional oil and gas to be found in the Middle East and the present oil and gas fields are in a state of advanced maturity, then the implications for development are profound.

For the rapid transformation to integrated economies with strong service industries within a globalized economy is the only future economic scenario that will support a rapidly growing population base. Fortunately this is the economic policy being pursued by most Middle East countries at the moment but it could be fine tuned if more data was made available about oil production and the outlook.