The Oil Shock's Consequences: Resilience or Collapse?
Comparing China and Europe
Arthur Berman, commenting on my generally positive review of China’s well-being variables, wrote
I believe China’s more positive trajectory is founded on cheap, imported oil and natural gas supply. The Ukraine and now Iran energy shocks produce a massive vulnerability for China. The global supply chain and trade disruptions from the Iran War will have grave effects on China’s future economic immiseration.
In the ensuing discussion, he referred me to a recent podcast he had on this issue with Nate Hagens, A World On the Precipice: The Last Oil Tanker From the Strait of Hormuz has Arrived – Now What? In this video, and in comments on my post, Berman pointed to the percolating effects of the US/Israel war on Iran on the world energy supply, resulting from the closing of the Straight of Hormuz. The developing oil shortages, in his view, will affect Europe within the next 30 days and the U.S., by July, while China will be severely affected even before the U.S.
A helpful feature of this prediction is that it clearly sets out the time frame — July is only a couple of months in the future, and surely the severe effects will be obvious by the end of the year. However, Berman is a bit vague on how “severe” the outcome will be — is it going to be a “civilizational decline” that will affect the whole world, or only a temporary, if painful, economic and social disruption akin to the Covid Pandemic, which affected some countries more than others?
Arthur Berman is clearly very knowledgeable energy expert, while I am not. I agree with him that the world is about to experience a huge shock, much worse than the 1970s Oil Crisis.
On the other hand, I know something about societal resilience, ability to withstand, and adapt to such shocks. My colleagues and I are on record arguing that it is societal resilience that determines whether an external shock results in “collapse” or “muddling through” followed by adaptation and recovery (see our publication, CRISES AVERTED. How A Few Past Societies Found Adaptive Reforms in the Face of Structural-Demographic Crises.)
My structural-demographic analysis of today’s China suggests that it enjoys a highly resilient political system, which suggests that muddling through is much more likely than the dire consequences suggested by Berman. We now wait to the end of the year, and see which of the two theories makes a more accurate forecast.
This debate is a special application of a much broader question: what is the relative importance of external shocks against internal resilience in explaining societal collapse? Among “collapsologists” the most popular theories point to severe climate shifts. The oft-used examples are the Classic Maya (where prolonged megadroughts supposedly overwhelmed agricultural systems), the Akkadian Empire (felled by a 200-year arid event), and the Norse in Greenland (starved out by the Little Ice Age).
My research team studied many examples of putative collapses driven by climate shocks. Most recently, we developed an empirically-based computational model for the population boom-bust cycles in Neolithic Europe. These were quite severe with whole regions becoming depopulated. But when we estimate the effect of climate worsening on agricultural productivity, we see only 10-15% decline in crops — certainly not enough to result in a complete depopulation of a whole region. The alternative hypothesis, supported by the data and model, is that growing population density results in increasing friction, conflicts, and eventually endemic warfare between farming settlements. This creates a “landscape of fear” inducing people to move to protected areas (such as hills or sea promontories), while large areas, suitable for agriculture, but dangerous to live in, are abandoned. You can read the details in these two publications:
Explaining population booms and busts in Mid-Holocene Europe
Switching to a historical example, one of the worst environmentally-induced disasters, known to us, was the Great Famine of 1315-17, resulting from a series of cold and wet years. This catastrophe resulted in a loss of perhaps 10% of the population in France and England. But it didn’t precipitate societal collapse. That happened in France starting in 1337 with the start of the Hundred Years War, which, as we explain in Secular Cycles, was a classic structural-demographic (SD) crisis. The huge population collapse came later, with the arrival of the Black Death in 1348. But even that disaster explains neither the start, nor the end of the Late Medieval disintegrative period in France. By 1400 the French population was reduced to less than a half of the 1300 peak, but the internal instability went on until 1453, two generations later. Recurrent warfare created “landscapes of fear” in such provinces as Normandy, which lost three-quarters of its population — and population couldn’t increase because they were all huddling within fortified cities and towns and could hardly work the land due to marauding Englishmen and other bandits.
I can multiply these examples (we have a huge databases of historical data), but let’s cut to the chase. Yes, environmental shocks, like severe climate events or pandemics, can deliver massive blows to political systems. But their effects, collapse or adaptation, depend on internal characteristics of the system. The Black Death killed as high proportion of the population of England, as in France. Yet it didn’t result in the collapse of the English state. Instead, the king and nobility adapted — by invading France, gaining peasants there to compensate for the ones they lost in England to the plague, and by generally exporting surplus elites and thus instability across the Channel. It worked well for a century (but then the French put their house in order and kicked out the English in 1453, after which England immediately collapsed into its own disintegrative crisis, the Wars of the Roses).
I am not suggesting that we today should follow this example of “predatory” adaptation. But the general principle rules: when states are in integrative SD phases they tend to be much more resilient to external shocks, because populations are reasonably well-off, elites are relatively unified, and the state is tolerably functional. During the disintegrative phases all those positive factors are not operating, and the result is that an external shock often serves as a triggering event that brings the system down.
My prediction that China will weather the Oil Shock of 2026 reasonably well is based on the SD analysis that strongly suggests that PRC is still well in its integrative phase. This is reflected, among other things, in their pragmatic approach to the global geopolitics. In particular, China is allied with Russia and Iran. China has been already profiting from the Ukraine war by importing cheap Russian oil and gas and that connection is secure.
The big question is what will happen to the oil China imports from the Persian Gulf countries. A possible scenario, which seems increasingly likely, is that Iran will be able to maintain its control of Hormuz, and will allow tankers headed to China to pass through. Whether the US Navy would be able to stop this traffic (or even attempt it), we’ll see in the months ahead. And don’t forget that over the months preceding the conflict, China was aggressively buying, and storing, surplus oil.
Of the other geopolitical players, Russia, of course, will be the main winner. In contrast, the European Union will probably be one of the worst losers. Both Germany and France, the core EU states, are already in a SD crisis. Their states are increasingly dysfunctional. Europe is fighting a proxy war with Russia, and they took the American side in the war against Iran. Given a choice where to send its fossil fuels, Russia and Iran are more likely to favor China than Europe.
The energy policy of Germany provides an excellent illustration of their political elites’ dysfunction. They enter the conflict with Russia, lose the supply of Russian cheap gas, and what do they do next? Abolish the remnants of their nuclear power. Then they restart coal mines (burning coals pumps much more CO2 into atmosphere per unit of energy, compared to methane). All such actions do not inspire confidence in their ability to deal with the Oil Shock.
Finally, I’ve been focusing on oil in this post, but that may not even be the most traumatic shock to the world system. In the view of many analysts (which I share) the loss of fertilizer supplies is much more serious. After all, people can drive less and stay home for summer vacation. But eating less means starvation, which I don’t recommend.
Thank you for taking my coments seriously and writing this post, Peter. I agree that resilience matters. But historical examples of resilience can't be transferred so easily to a world whose basic operating system is globalized fossil-fuel infrastructure.
Your examples involve societies that were largely regional systems. France could lose 10% of its population. England could fight France. Neolithic farmers could abandon valleys and move to hilltops. The shock was severe, but the underlying energy base—solar agriculture, wood, animals, local production—remained intact.
My argument is different. I'm saying that resilience itself depends on continued access to a highly complex global system powered by oil. That is a different proposition.
China's food system, manufacturing system, export system, mining system, trucking system, shipping system, construction system, and military system all depend on enormous flows of fossil fuels. Not just Chinese fuels, but global fuels.
You seem to view the oil shock as analogous to previous external shocks. I view it as a shock to the foundational metabolic system on which all modern complexity depends.
You may be right that China is more resilent than Europe because it has a more cohesive, adaptable political system. But the larger point is that it has planned for an oil shock better by building vast reserves. They won't last long but will soften the blow better than countries without stores of energy.
Contrary to your statements, I have been quite specific about the timing and gravity of the current energy shock including projections of global GDP under several scenarios. The best case is about -1.5% below consensus base line. That will be catastrophic for the world and China will be greatly damaged from demand destruction for its products. The adverse cases probably involves serious complexity collapse. Here's a link to my base case on X: https://x.com/aeberman12/status/2060707716658495657?s=20
What is fair about your criticism is that there is no historical precedent for the scale of the current shock so I can't be as specific as you would like, But that's also why your pre-fossil fuel society examples are weak.
My scenarios are basde on a civilization whose complexity was built on a one-time pulse of extraordinarily dense energy. The historical database becomes much less useful when the underlying energy regime itself is unprecedented.
The true debate is not about resilience vs fragility. It's whether modern resilience is independent of fossil-fuel abundance or merely an emergent property of it.
All the best,
Art Berman
Europe will suffer most. China is a question mark. And America might actually turn expensive oil into an advantage.
This text👇 was written on March 9th — and back then it sounded like pure fantasy. Today CNN is already covering this scenario. And if oil crosses $150, there's a very real chance this stops being theory and becomes reality.
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♦The Time When Everything Is Possible♦
The End of the Global Oil Market — and Why $200 Oil Might Actually Benefit America
We are living in a time of war. The global reshaping of the world order is a war — with its hot fronts and cold ones. And in wartime, the interests of nations rise above the interests of private corporations.
By effectively taking control of Venezuelan oil, America can now almost entirely walk away from Arab crude. This is not a coincidence — heavy Venezuelan oil is an excellent match for the refineries along the U.S. Gulf Coast, which were built precisely for that grade.
Back in the 1970s, Arab oil accounted for 40–60% of total U.S. imports. Today that figure is around 8% — roughly 450,000 to 520,000 barrels per day. Venezuela, meanwhile, currently produces somewhere between 850,000 and 950,000 barrels per day. The remaining Arab imports aren't about volume — they're about oil type. Gulf Coast refineries run best on heavy crude, and heavy crude is exactly what Venezuela produces.
Between domestic production, Venezuela, and Canada, the United States has everything it needs to be fully self-sufficient.
And since we are living through a fundamental restructuring of the world — an era where the old rules have collapsed and genuinely anything is possible — don't be surprised if Trump decouples the price of American and Venezuelan oil from the global market entirely.
Trump has real leverage to do this. Under the old rules-based order, such a move would have been extraordinary, even shocking. In a world without rules, it's entirely logical.
We have entered a historical phase where rules are no longer constraints — they are set decoration. Trump has long demonstrated he has no fear of tearing down old scenery.
If Trump genuinely decides to "lock" oil inside the United States, he could achieve gasoline prices of $3.00–$3.50 per gallon domestically — while Europe and much of the world, caught in a war involving Iran, watches prices spike to the equivalent of $8–$10 per gallon.
This would mark the end of a unified global oil market and a return to the era of regional pricing.
American oil producers would suffer — or more precisely, they would simply lose their windfall profits at the moment of peak global prices. While the rest of the world pays $150–$200 per barrel, the U.S. could hold its domestic price at $70–$80.
And that's actually a good price. Without a war, a barrel would cost less than $70. For the American shale industry, that range is essentially the comfort zone — profitable, but without the superprofits. In exchange, the broader economy gets a massive competitive boost relative to every other country on earth.
Oil companies can also be compensated through other means for the lost export premium. Because the gain to the entire American economy would far exceed what energy companies lose by not selling at world prices.
American goods would become dramatically more competitive in global markets. If energy in the U.S. costs two or even three times less than in Europe or China, the reshoring of manufacturing accelerates sharply. Steel mills, chemical plants, and auto giants will race to relocate capacity to places like Texas, because producing there would be incomparably cheaper. Under this scenario, every competitor the U.S. has would be hurt — and in economic terms, there are no friends, only competitors. That's why tariffs have been introduced against everyone.
First and hardest hit will be those who put too much faith in a green future and abandoned traditional energy sources too soon. Europe, above all.
So in this scenario, global oil at $200 for a couple of years would not be a catastrophe for America. It would be an enormous advantage — a head start that reshapes the competitive landscape of the entire global economy.
This has happened before. Under Nixon, the U.S. froze domestic energy prices, and American gasoline cost two to three times less than world market rates. Today it would be even easier to do — and less painful — simply because there is far more oil in the ground. The question was never whether it's physically possible. It clearly is. The only question is political will.
In a world where everything is possible, survival belongs to those who turned energy into their sovereign foundation. The prosperity of a nation is no longer determined by participation in global trade flows or by price tickers on foreign exchanges. It is determined by physical control over resources and territory.
The rules of the game have been replaced by the rule of force. In this new reality, the winner is the economy that depends least on global chaos.
This is not a question of physical feasibility — that part is entirely doable. It all comes down to political will.
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