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The End of the Oil Age

For more than a century, the oil and gas industry has played a central role in almost every geopolitical development of consequence. Now that the fossil fuels' days finally seem to be numbered, it is time to consider not just what will come next, but also what it will take to get there.
TAFT, CA – JULY 22: Oil rigs just south of town extract crude for Chevron at sunrise on July 22, 2008 in Taft, California. Hemmed in by the richest oil fields in California, the oil town of 6,700 with a stagnant economy and little room to expand has hatched an ambitious plan to annex vast expanses of land reaching eastward to Interstate 5, 18 miles away, and taking over various poor unincorporated communities to triple its population to around 20,000. With the price as light sweet crude at record high prices, Chevron and other companies are scrambling to drill new wells and reopen old wells once considered unprofitable. The renewed profits for oil men of Kern County, where more than 75 percent of all the oil produced in California flows, do not directly translate increased revenue for Taft. The Taft town council wants to cash in on the new oil boom with increased tax revenues from a NASCAR track and future developments near the freeway. In an earlier oil boom era, Taft was the site of the 1910 Lakeside Gusher, the biggest oil gusher ever seen in the US, which sent 100,000 barrels a day into a lake of crude. (Photo by David McNew/Getty Images)

Pessimism has pervaded the oil industry ever since its inception in 1859, when the small town of Titusville, Pennsylvania, became the site of the first oil rush. To many observers at the time, the “black gold” was a gift from Mother Nature that would surely be exhausted once discovered by others. In 1885, Pennsylvania’s official state geologist warned that, “The amazing exhibition of oil” would be merely a “temporary and vanishing phenomenon – one which young men will live to see come to its natural end.”

Since then, there has been perennial speculation about an imminent shortage. In the 1950s, the American geologist Marion King Hubbert built a sophisticated mathematical model to estimate the size of oil fields and natural-gas reserves, popularizing the idea of “peak oil”: the moment after which production would begin a structural decline. In his view, the rate of oil extraction would resemble a bell curve, with a steep rise to a peak in the 1970s, followed by terminal weakening.

Needless to say, such fears have not been borne out. Hubbert and countless others issuing these wrong-headed predictions underestimated both the true scale of the planet’s oil reserves as well as humanity’s ability to overcome the physical limits to further extraction. New fields are discovered regularly, and existing wells have not been exhausted as quickly as the pessimists thought. Instead of peaking, it turns out that an oil well’s productivity actually tends to plateau. And Hubbert, forecasting during a period of technological stagnation in the industry, could not have anticipated that hydraulic fracking and horizontal drilling would usher in the shale-energy revolution 60 years later, reshaping the entire industry.

More important, Hubbert was mistaken about the source of the peak. At a time when the United States had gone from being an energy-independent country to a net oil importer, he thought it inconceivable that the exhaustion would come on the demand side, rather than the supply side. And yet, as Sheikh Zaki Yamani, Saudi Arabia’s oil minister from 1962 to 1986, reputedly observed, “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”

Even before the coronavirus pandemic, a number of structural factors were expected to weigh on long-term oil consumption. The ongoing energy-efficiency gains in emerging economies (particularly China), the mass commercialization of electric vehicles, rising socio-political pressure to reduce carbon dioxide emissions, and the retrenchment of globalization vindicated Yamani’s prediction. Now, the pandemic is accelerating trends that previously seemed to be at least a decade away.

According to the Norwegian energy company DNV, oil demand already peaked in 2019 and is now on a declining path. The British energy company BP argues that demand might decline by at least 10% this decade, and by as much as 50% over the next 20 years. But any such prediction risks being as unreliable as Hubbert’s. No one can know where the oil-demand plateau will lie.

What does seem certain is that the world is in the midst of a paradigm shift, from perceived oil scarcity to oil abundance. At the same time, the push for renewables means that oil’s unquestioned supremacy is finally coming to an end. This world-historic development will have far-reaching geopolitical and economic implications that the three books under review can help us understand.


The pandemic has spoiled many books on global affairs that were planned for publication in 2020. To view the future from a pre-coronavirus perspective would be like forecasting long-term trends in the Cold War immediately after the fall of the Berlin Wall. Even if one believes that the COVID-19 crisis has only accelerated – rather than fundamentally altered – history, its consequences, particularly for the energy industry, are so extensive that they cannot be ignored.

Fortunately for Daniel Yergin, his latest book, The New Map, is likely to stand the test of time. Yergin is rightly credited as one of the leading energy experts of our age. In 1992, he won the Pulitzer Prize for The Prize, an epic history of the oil industry and its role in the economic, political, and military events of the past century. His latest book is less ambitious in scope and less remarkable in its scholarship; but it is fascinating nonetheless as a primer for readers who want a sense of where the oil and gas industry is headed.

Yergin dismisses the notion that the pandemic will hasten the low-carbon transition, arguing that oil will maintain a preeminent position as a global commodity for a long time to come. In his view, a rapid shift toward renewables would be too costly economically and too difficult technologically, despite the new momentum behind national decarbonization strategies and commitments.

The world still depends on coal, oil, and gas for 80% of its energy, Yergin reminds us, and that share has changed little over the last 30 years. Thus, the goal of reducing CO2 emissions to net-zero by 2050 looks far-fetched. In Europe, where annual per capita income is $38,000, per capita emissions would need to fall to the same level as India’s, where annual per capita income is $2,000. That implies a decoupling of growth from resource use on an unprecedented scale and at an unprecedented pace.

Yergin prefers to focus his attention on how the supply-side map of oil and gas is evolving. The shale revolution that started in the US a dozen years ago represents the main source of change. Between 2008 and 2020, US petroleum production almost tripled, making it the world’s top producer, ahead of Russia and Saudi Arabia. In 2014, Texas alone produced more oil than Mexico, and more than any OPEC producer except Saudi Arabia and Iraq.

The geopolitical consequences have been profound. Although the US still imports large quantities of Middle Eastern oil (which is more suitable for American refiners than what is produced in Texas), it now enjoys a greater degree of energy security than it has in decades. During his presidency, Donald Trump tried to go a step further by promoting “energy dominance” as a US strategic goal. “An energy-dominant America,” then-Secretary of Energy Rick Perry explained, “means a secure nation, free from the geopolitical turmoil of other nations who (sic) seek to use energy as an economic weapon.” In reality, even if shale producers have upended the oil industry, the US has gained only energy flexibility, not independence, let alone dominance.

Among the biggest losers of the shale revolution are the Middle East’s oil producers. The transformation of the industry has endangered the public finances of countries that rely heavily on oil revenues to sustain generous social programs and maintain political stability. Saudi Arabia offered its citizens so many handouts during the heyday of oil demand that it came to be known as the “nation of entitlements.” But then came the flood of American shale in 2014, when Brent prices dropped from around $110 per barrel to less than $30. Saudi oil-export revenues fell from $321 billion in 2013 to $136 billion in 2016, leaving its welfare state severely pinched.

American-produced liquefied natural gas has also undercut Russia, by providing Europe with an opportunity to reduce its reliance on Russian exports. With less leverage over Europe, Russia is now pivoting to the East to satisfy the needs of an energy-thirsty China. In 2009, the China Development Bank lent the Kremlin $25 billion to develop new fields and to build a pipeline capable of supplying China with 300,000 barrels per day. Moreover, China’s aggressive strategy in the South China Sea is driven not just by potential oil and gas deposits there, but also by the need to safeguard the delivery route for the oil and gas imports that keep its economy running.

But while China still accounts for a disproportionate share of global coal consumption (together with India, two-thirds of the total), it is better positioned than the US to thrive in the clean-energy era. In addition to dominating the global supply chain for lithium batteries, it produces more than 70% of the world’s solar modules and accounts for nearly half of global manufacturing capacity for wind turbines.


With the shale revolution having diluted the pricing power of the Organization of the Petroleum Exporting Countries (OPEC), Yergin believes that the cartel is becoming increasingly irrelevant. The US, Saudi Arabia, and Russia are the true market makers now. To him, that became abundantly clear last spring, when the three countries engineered an unprecedented international effort to cut global oil production in response to the COVID-19 shock.

But it might be too early to write off OPEC. The organization’s death knell has sounded every time world oil prices have plummeted, and yet it has survived. American producers are too numerous to act as a single force pushing prices in whatever direction they desire. And in the coordinated response last year, it was Trump’s inflammatory Twitter diplomacy (and pressure on Iran) that brought the Saudis on board.

Similarly, while Russia and Saudi Arabia can still influence market expectations, they have only limited ability to alter the demand-supply balance in the physical market. By contrast, OPEC, and particularly OPEC+ (an alliance with Russia and several countries within its geopolitical orbit), still commands enough heft to shift markets and react to price shocks.

In The Rise and Fall of OPEC, historian Giuliano Garavini of Roma Tre University offers a refreshing account of an organization that has managed to adapt to radically changing conditions throughout its 60-year life. Unlike what one might think, its history is far from monolithic.

Garavini, who enjoyed unprecedented access to OPEC’s archives, recounts the cartel’s first two decades (1960-80), when it acted as a geopolitical challenger in the broader context of the decolonization process that had started after World War II. Its founding members – Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela – wanted to regain control of their oil reserves from the handful of Western multinationals that had laid claim to them.

Then came the oil shocks of 1973 and 1979. Western economies were brought to their knees, and policymakers started casting about for alternative energy sources. As one analyst said at the time, “When the price of something as essential as oil spikes, humanity does two things: finds more of it and finds ways to use less of it.”

As a result, OPEC soon faced not only lower demand but also increased supply, owing to the crude coming from non-OPEC producers, particularly Alaska. From this moment until 2000, OPEC curtailed its geopolitical ambitions and tried to behave like a proper cartel, setting production quotas and targeting specific price ranges.

Thanks to the rise of energy-poor China in 2000, the cartel was able to lift prices to historic highs, with the West Texas Intermediate (WTI) benchmark approaching $150 per barrel in 2008. And until 2014, OPEC remained a largely passive observer of the market. As long as oil demand kept growing, so did prices, alleviating the need for the cartel to intervene.

Enforcing compliance with agreed quotas has always been the organization’s main challenge, because its primary mission is to stabilize oil prices in such a way as to maximize revenues for its member states. In response to the existential challenge posed by the US shale revolution, OPEC was forced into the uncomfortable OPEC+ alliance, the fragility of which became clear with the arrival of the coronavirus. The cartel’s membership jumped from 13 countries to 23, making coordination even more difficult, and now its viability required cooperation between two historical enemies: Saudi Arabia and Russia.

When Saudi Arabia and Russia failed to reach a deal back in March 2020, the result was an unprecedented price war that pushed the WTI benchmark deep into negative territory for the first time ever. Even the ambitious deal agreed the following month, which sought to curb output by 9.7 million barrels per day, only partly repaired the damage. Since then, OPEC+ has continued to struggle to overcome coordination problems, with Russia always pushing to boost production and Saudi Arabia recommending a more conservative approach. Nonetheless, it has so far managed to strike a balance between opposing views, allowing output to rise only gradually, in line with the demand recovery.

The enlarged cartel thus has played the important role of market balancer – a position that it should now aspire to maintain. Ironically, OPEC+ will have a part in managing the transition away from fossil fuels. Peak oil demand means that global demand will be on a declining path for the first time ever. Representing around 45% of global production, OPEC+ is in a unique position to guarantee some degree of stability by signaling its readiness to offset output surpluses to prevent prices from collapsing. Declining demand implies that supply will have to adjust continuously to prevent inventories from rising too fast, bringing down oil prices and revenues.

Moreover, as a key accidental player in the green revolution, the group could provide a valuable forum for exchanging critical information and sharing best practices among member states, all of which will need to make their economies less dependent on the revenues from oil exports.


Whether OPEC+ evolves into a permanent alliance of this sort will depend on the likes of Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, the son and heir to the throne of King Salman bin Abdulaziz Al Saud. Colloquially known as MBS, the crown prince is by far the most eccentric and controversial figure in today’s oil industry.

In Blood and Oil, award-winning journalists Bradley Hope and Justin Scheck describe how the 35-year-old MBS rose to become one of the most powerful people in the Middle East. Among other things, it was MBS who decided to launch the price war against Russia last spring, when the Kremlin refused to go along with additional supply cuts in response to the COVID-19 shock. But that was hardly the first jolt he had administered, either to his own country or to OPEC.

In telling this story, Hope and Scheck explain early on that they are “investigative reporters who focus on money – how it’s spent, where it flows, and what it’s used for.” On condition of anonymity, they interviewed many prominent detractors within the Saudi establishment, and mined even more information from confidential government documents, financial filings, and some of the crown prince’s past (unsuccessful) business ventures.

Unlike most Saudi princes, MBS never studied in the US or Europe. His father, who became king in 2015, did not want his favorite son to lose his Saudi identity and be morally corrupted by Western culture. As Ibn Saud, the founder of Saudi Arabia, said: “To be a leader of men, a man has to receive an education in his own country, among his own people, and to grow up in surroundings steeped with the traditions and psychology of his countrymen.”

These solid local roots have enabled MBS to strike a complicated balance, securing his legitimacy among conservative clerics and within his own clan while also cultivating the image of a reformer among many in the West and a burgeoning cohort of young Saudis. Shortly after his father’s ascension to the throne, MBS made clear that he did not tolerate dissent. He began ousting or locking up rival royals, including the then-crown prince, Mohammad bin Nayef. Before turning 30, he had already amassed enormous power as the minister of defense and chairman of the state oil giant Aramco, one of the world’s largest and most profitable companies. By 2017, MBS had become the new crown prince, following a reshuffling by his father.

The book paints a familiar portrait of MBS as an authoritarian leader at home and an assertive one abroad. In 2015, with an eye toward establishing his authority in the region, he launched a military operation in Yemen against the Iran-backed Houthi rebels, taking his American allies by surprise. The mission was supposed to last just a few weeks, but it deepened a conflict that continues to this day.

MBS also ordered the kidnapping of Lebanese Prime Minister Saad Hariri and organized a blockade of Qatar, because he saw both parties as too soft on Iran. Most notoriously of all, he is credibly believed to have ordered the murder of the Washington Post columnist Jamal Khashoggi at the Saudi consulate in Istanbul in October 2018.

MBS’s authoritarian, impulsive, and erratic leadership style has not won him many friends in foreign capitals, despite his enormous power in the Middle East and within the oil industry. But he deserves some credit for having outlined a clear strategy to end Saudi Arabia’s addiction to oil under his Vision 2030 plan for diversifying and modernizing the economy. He also claims to want to open Saudi society to the world, by relaxing the stifling Wahhabi tradition and dismantling deeply entrenched structures of gender segregation. Some of this has already happened; but it remains to be seen how far he will go in pursuing his social agenda.

Even if most observers dismiss Vision 2030 as window dressing rather than a serious plan, MBS remains one of the few leaders in the region who has come up with anything like a concrete proposal to cope with the end of the oil era. To convince his countrymen, he has often reminded them that his grandfather “King Abdulaziz and the men who worked with him had established the Kingdom without depending on oil, and they ran this state without oil, and lived in this state without oil.”

With peak oil demand now nearing, many in the Middle East eventually will find themselves in the same position. They and their leaders should prepare themselves before it is too late.

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