Peak Oil – Impacts on Global Trade

Over the last several decades the world has been characterized by increasing dependence among nations. This interdependency – what we call globalization today – is a multi-layered and complex phenomenon involving intensive political, social and economic interaction, both nationally and internationally. Global trade is integral to the process of globalization. Over many years, governments in most countries have increasingly opened their economies to international trade, whether through multilateral trading systems, increased regional cooperation or as part of domestic reform programs. Trade and globalization more generally have brought enormous benefits to many countries and citizens. Trade has allowed nations to benefit from specialization and economies to produce at more efficient scale. Chief among the technological drivers of globalization are inventions that have improved the speed of transportation and lowered their costs. These include the development of the jet engine, containerization in international shipping and the revolution in information and communication technology. In the new economic geography literature, the size of trade costs is a major determinant in the decision of companies on where to locate. In the literature on international fragmentation of production, trade costs have been seen as influencing the choice between outsourcing or in-sourcing, and sourcing through intra firm or arm's-length trade. Consequently, transportation is often referred to as an enabling factor that is not necessarily the cause of international trade, but as a condition without which globalization could not have occurred. Additionally, the recent years have brought a great deal of turmoil and instability to the global oil market. While oil prices impact global economy at large they impose a particular burden on global trade. The important question is whether the world is at the outset of a new era in which oil output is nearing its peak and will no longer be sufficient to meet global demand. Forecasting the future of oil has always been a challenging task. The reason is that most of the world's oil reserves are concentrated in the hands of governments which provide very little access to their field by field reserve data and resist privatization of their oil industry and foreign investment in their countries. It can also not be predicted, how far we are from peak oil, the point in which half of the world's cheaply recoverable oil has been depleted and from where prices never go down. engGlobal trade itself is poised to be the prime casualty of the new era of expensive oil. The volatility in oil prices in recent years is taking global trade into uncharted territory, raising questions about the economic viability of many players in the industry