Oil use decline: A world where oil no longer drives the global economy

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  Quantumrun Foresight
• January 25, 2023

Oil has been the centerpiece of the global energy paradigm for centuries. But as the world transitions to carbon-less energy, a future is emerging where oil will no longer be crucial to modern ways of life. 

Oil use decline context

In 2015, almost 200 countries ratified the Paris Climate Agreement, agreeing to pursue measures that limited average temperature increases on Earth to below 2 degrees Celsius above pre-industrial levels. At the same time, signatories would pursue efforts to cap the temperature rise at 1.5 degrees Celsius. If this scenario comes to pass, oil demand could decline 70 percent by 2050 from 2021 use levels. 

According to research and consultancy firm Wood Mackenzie, which published the figure, this scenario would see the price of oil decline to less than $10 a barrel, with the world primarily relying on clean energy to meet its power needs. The oil industry, in this scenario, would not completely collapse but instead take on a new form, though only 20 percent of industrial participants would survive such a transition. The oil market by 2050 would also be a third smaller than it was in 2021. 

Of note, the rapid advancements and cost declines in electric vehicle and battery technologies will drive the rapid adoption of electric vehicles, outselling combustion vehicles entirely by the late 2020s. Furthermore, world events such as deglobalization sparked by the COVID-19 virus in 2020 and the Russia-Ukraine War of 2022 have sparked renewed and accelerated investments into national energy security and energy independence programs that favor renewables.

Disruptive Impact

Countries that rely heavily on oil exports to fund themselves would be drastically affected by the price and demand of oil dropping significantly by 2050. These countries, such as Saudi Arabia, Nigeria, and Russia, would need to transition to alternative forms of energy quickly. Otherwise, they may enter a debt spiral, leading to significant social, political, and economic repercussions, including regime change. Populations that had become used to subsidized services might need to pay more for these services, causing social upheaval, rising inflation, and instability. Workers within the oil industry may lose their jobs, further exacerbating economic and social decline. 

Certain industries are highly reliant on the oil industry, such as transportation (and in relation to the global logistics sector) would need to adopt new battery-based technologies to drive critical machinery and vehicles, such as cargo ships, trucks, and freight trains. Vehicle manufacturers that do not quickly adapt to the transition to electric cars may go out of business, leading to increased unemployment in regions that rely on these businesses to support the local economy. 

Implications of a future without oil

Wider implications of oil no longer being critical in driving the global economy may include:

• Energy prices rising during the medium term (2020s) as preferences for renewable energy investments limit continued investments into carbon-based energy infrastructure. This transition period will result in regular energy price spikes as utilities struggle to provide power to meet rising energy consumption levels caused by population and urbanization growth. By the 2030s and 2040s, energy prices will begin to flatten out and fall in price compared to rates seen during the 1990s or 2010s.
• Food and commodity prices rising in countries where energy supply gaps exist between declining fossil fuel-based energy sources and growing, if still nascent, renewable energy sources. 
• Thousands of oil workers losing their jobs or employers engaging in mass reskilling programs so they can be deployed within other parts of the energy industry.
• The renewable energy industry growing at an exponential pace, which may significantly increase the price of precious earth metals used to make renewable energy technology.
• Oil and gas infrastructure needing to be repurposed or recycled, a process that can take over two decades.
• Governments that were previously dependent on energy revenues, gradually being forced to diversify their economies. This process will decentralize national power structures and potentially work to moderate authoritarian regimes.

Questions to comment on

• Which domestic industries will benefit the most from a decreasing reliance on oil?
• Who should be responsible for funding and closing derelict oil facilities such as wells, pipelines, and rigs?