China and US Trade Talks: A Solution for Oil Shortages?
China may also be a key to ending the Iran conflict
The war with Iran is not going well. It is difficult to supply US troops with adequate food and other necessities. With summer arriving soon, the region will soon be an even more inhospitable place for ground troops to fight. An underlying problem is that the world economy was reaching resource limits even before the Iran War began, adding to the difficulties.
The most pressing resource limit is distillate fuel oil–an industry term for what we think of as diesel and jet fuel. This fuel is heavily used in transportation. It is also used extensively in agriculture and industry. Somehow, the system needs to cut back on these fuels for international trade so that more fuel is available for agriculture and industry.
President Trump of the US and President Xi of China will be meeting in Beijing on May 14-15. This meeting would seem to be the perfect time to start reorganizing the world with shorter trade routes, so that the world economy uses less fuel for transportation. China and the US are the two great powers in the world. Keeping trade mostly within the two areas shown in Figure 1 would be a way of using fuel oil more sparingly.
An advantage of such a plan, besides saving on fuel, is that it could stop the Iran War without clearly declaring one side the winner or loser. In this post, I will attempt to explain the situation further.
[1] Based on the ideas of Dr. Mohammed Marandi, I believe that China might be able to mediate a settlement between the US and Iran.
Dr. Marandi was born in the United States of Iranian parents. He currently lives in Iran, where he is a professor at the University of Tehran. In the video, One Country Quietly Won this War, he points out that, often, when two countries battle each other, neither one emerges as the clear winner. Both of them are damaged by the war. The actual winner may be a country that does not seem to be directly involved in the war.
In the video referenced above, Dr. Marandi discusses three historical situations in which a nation not directly involved in a conflict gained stature by being the “adult in the room,” when two other nations battled each other. In this case, Dr. Marandi believes that China could very well be the country that can exert enough pressure on both sides to get them to accept a proposed solution. He says that China has acted behind the scenes to bring about the ceasefire, and that Trump has acknowledged China’s role.
Dr. Marandi suggests the idea that the upcoming meeting of the two presidents might be an opportune moment to make major steps toward a mutually agreed settlement. I believe that the underlying problem is that there isn’t enough energy (particularly oil) to support a world population of over eight billion. Dividing up markets in the way I have suggested would at least somewhat alleviate the shortage. Of course, there may be other terms of a settlement, as well. In addition, not all the terms may be determined precisely at this time.
[2] The world doesn’t have enough diesel and jet fuel to maintain the current level of trade across the Atlantic and Pacific Oceans.
Figure 2 shows that per capita diesel and jet fuel started to drop at the time of the Great Financial Crisis in 2007-2009. Their supply took a larger step down in 2020, and it hasn’t completely recovered. In 2026, the Iran War has taken out more crude oil supply, for an unknown period of time.
Diesel and jet fuel are both very important as transportation fuels. Diesel is also important in agriculture because it provides the power needed for heavy machinery to till fields, even under the most adverse conditions. Diesel provides the power needed for large commercial trucks, many trains, and ships. Earth moving equipment is also typically operated by diesel fuel.
If the amount of trade across the Atlantic and Pacific could be greatly reduced, it would help alleviate the shortage of distillates. Of course, the tourist trade would also need to be greatly reduced. With recent spikes in aviation fuel prices, many flights are being cut. Some airlines, including Spirit Airlines in the US, are going bankrupt. The problem is starting to solve itself, but more changes will be needed.
[3] Looking at population and oil supplies, the Americas seems likely to come out somewhat ahead.
[3a] Comparing the populations of the two areas, the World ex Americas is much larger, and its population is growing faster.
President Xi (leading one hemisphere) would get the very large and still rapidly growing part of the world population. President Trump would get a smaller and less rapidly growing share of the world population. Between 2021 and 2024, world population grew an average of 0.6% per year in the Americas, and an average of 0.9% per year in the World ex Americas.
[3b] The Americas seem to have an advantage with respect to crude oil production.
It makes sense to look at energy amounts on a per-capita basis because the quantity needed depends on the number of people requiring the benefits of transportation, agriculture, and industry. On this basis, crude oil production of the Americas has clearly been outshining that of the World ex Americas. It is higher on a per-capita basis. In addition, the amount available has been increasing in recent years.
Figure 5, below, shows total crude oil production (not per capita).
Figure 5 suggests that since 2005, crude oil production for the World ex Americas has hardly increased. In fact, total extraction has decreased since 2019. A person viewing this data might conclude that crude oil production in this area may already be past its peak.
On the other hand, Figure 5 shows that oil production of the Americas has increased by about 65% since 2005. Many people believe that US shale production will soon decline. At the same time, however, increases seem likely in several other countries in the Americas, including Canada, Brazil, Argentina, and Guyana. Thus, while crude oil production for the Americas may decline in the near future, its decline is likely to be gradual.
[3c] Crude oil production by geographical area outside of the Americas shows declining production in all areas.
Figure 6 shows that Europe’s crude oil production started its permanent decline in 2001. Asia-Pacific’s production hit a maximum in 2010, and it has been declining since. Africa’s peak oil production took place in 2008, and it has been mostly declining since.
Russia+, which I use to refer to Russia plus nearby countries that used to be part of the Soviet Union, has an unusual production pattern. Its crude oil production started to decline in 1989, two years before the collapse of the Soviet Union in 1991. (This collapse in crude oil production likely contributed to the collapse of the Soviet Union.) Crude oil production for Russia+ rose from 1998 to 2019.
Russia+’s production took a big step down in 2020, and it has not been able to recover since. A person might think that Russia+’s oil production was post peak, even before the 2022 conflict with Ukraine broke out. If an oil exporter doesn’t have enough oil to export, it tends to create financial problems within an economy. Participating in a war can appear to mitigate the country’s problems.
Many people assume that the Middle East has endless inexpensive-to-produce crude oil. I don’t think that this is the case. Crude oil production of the Middle East (Figure 6 above) hit two similar peaks in 2016 and 2018, and it has been lower in years since then. I think that Middle Eastern oil production is likely past peak partly because of depletion issues and partly because most countries in the area require high taxes on oil exports to provide subsidies for their ever-growing populations. This leads OPEC to try to maintain high prices. Lower crude oil production since 2018 is consistent with the hypothesis that oil production for the Middle East is mostly post-peak.
One additional difficulty of the World ex Americas is that it is so heavily populated that it cannot access tight oil that might be available without displacing a large number of residents. Another difficulty is that very old wells, such as those in Saudi Arabia and Iran, are ones that it might not be possible to restart if they are shut in for an extended time.
[4] In terms of mining and manufacturing, the Americas seems to come out behind the World ex Americas.
The World ex Americas has rapidly ramped up mining and manufacturing. Coal has been the preferred industrial fuel, with natural gas consumption also increasing.
Figure 7 shows that the energy consumption of the World ex Americas started increasing more rapidly after China joined the World Trade Organization in 2001. The consumption of coal and natural gas has especially increased.
The economies of the Americas have tended to shift towards service economies. Emphasis has been placed on fuel efficiency. Homes are now better insulated, light bulbs are more efficient, and engines of vehicles are more efficient. As a result, energy consumption within the Americas has tended to stay flat (Figure 8).
I have used the same scale on Figure 8 as on Figure 7 to emphasize how low energy consumption for the Americas is now, relative to the rest of the world. After US oil prices first rose to a high level in 1973, the US started transferring manufacturing to lower-wage countries. Southeast Asian countries began to be favored after 2001. Moving manufacturing abroad helped hold down US energy consumption and helped make the cost of goods to the consumer cheaper.
The problem today is that moving so much manufacturing elsewhere has made it difficult for the Americas to go back to producing its own goods, including clothing, furniture, and transformers for electrical systems. Supply lines for a particular item, such as a refrigerator, often run through many countries around the world.
[5] The full transition to the configuration shown on Figure 1 could take well over 100 years.
Changes, such as new supply lines and the new placement of major population areas, cannot happen very quickly. But I expect that some of the same underlying principles that guided these decisions in the past will continue to guide them in the future.
For example, infrastructure (roads, bridges, pipelines, and (today) long distance electricity transmission lines) seems to be the most difficult part of an economy to maintain because of the huge amount of energy required. Before the days of fossil fuels, I understand that slave labor was often used to build and maintain infrastructure. Similarly, slave labor was sometimes used to staff the mines needed to support the building of such infrastructure. As we lose fossil fuels, we will need to think about reducing our reliance on infrastructure.
One low-infrastructure approach used in the past was to build cities near bodies of water, so that fewer roads would be needed. Boats could be used to transport goods without building roads or bridges. If fish were available, they could be caught and used for food. In Figure 1, I am imagining that we will head back in this direction, with cities especially along navigable bodies of water and the ocean.
Unless we discover ways to replace fossil fuel energy, I would expect that the system will tend to go down in the reverse order of when it was put up. In general, electricity was last to be added, after coal, oil, and gas from coal. Electrification was first built in cities; then electricity transmission lines were added to provide electricity to rural areas. Above-ground lines tend to be damaged in storms, leading to a need for frequent repairs. Because of this issue, I would expect rural electricity to disappear quite quickly, unless it is generated at the location where it is used.
Natural gas shipped as Liquefied Natural Gas (LNG) was added very late. Its cost tends to be much higher than that of pipeline gas. I expect it to disappear quite quickly.
A full transition to the two trading zones shown on Figure 1 would require a huge number of changes in supply lines. A 2025 chart by Visual Capitalist shows how much control China has over critical minerals. It states, “China controls key materials such as graphite, rare earths, and gallium–essential for green technologies and defense industries.” While the US has started working on its own production of minerals, it will also need to develop the processing capability for these minerals. Putting all of this in place will likely take many decades. This is a significant factor in the 100-year estimate.
[6] If energy supplies are limited, I would expect population centers closest to fuel sources to be especially favored.
Writers today talk about possibly running short of diesel and jet fuel in a few weeks or months. Clearly, if a population center is at a location where there are both oil wells and refineries for the oil from those wells, the area has a better chance of having fuel than an island in the middle of the Pacific with nothing to sell other than tourism. Thus, Houston, Texas, will likely have fuel, even when models suggest there will be shortfalls in many places.
Often writers concerned about resource shortages talk about the core and the periphery. The core needs to be near whatever source of energy is available that can be used to help grow crops and transport goods. At this point, oil is the fuel that is closest to filling this need. Electricity is a nice-to-have, and it can provide services like refrigeration for food. But it is not good for paving roads or building bridges. So, it can only add to the mix, not substitute completely for oil. Slave labor is the closest substitute for oil that the world has discovered. We would rather not go back to using such an approach.
[7] I am concerned that a major downward economic step will be necessary in the upcoming months and years, but I am hopeful that the meeting between President Trump and President Xi on May 14-15 can help smooth the way.
We are at a point at which it is clear that the current organization of the global economy is not working. I hope that the meeting between Trump and Xi will help put an end to fighting in the Middle East. I also hope it will help pave the way for a new path forward.
I expect that the path ahead will be a difficult one, both for the people in the Americas and the people in the World ex Americas. While the US has considerable energy supplies, it lacks manufacturing capability for many everyday goods. The US is also lacking in many critical minerals, especially those used in making high-tech products. With its high wages, it will need extremely high prices, unless processes can be made very efficient.
The World ex Americas may have an even more difficult step down. Its oil supply was already more stretched before the Iran War. Its overpopulation problem seems to be worse than that of the Americas. The World ex Americas is more directly affected by the damage done in the Middle East and the resulting loss of oil supply. And there seem to be many groups looking for war, even if the US leaves.
Let’s all keep our fingers crossed that the upcoming meeting will have a beneficial effect, both in the short term and in working toward a longer-term solution.
You speak about trump as if he is a rational actor. He is a seriously broken/demented man surrounded by fawning synchofants. All he wants is to save his self-image and stay in power.
Economics and politics/geopolitics cannot override the laws of physics. I sure hope there is someone present in the room during the meetings between Xi and Trump with a great powerpoint presentation to demonstrate this. Imagine a Chinese person and an American person both looking at the global energy situation and presenting data, and saying "Wow, we are on the same page!" And then Chairman Xi and Donald Trump shaking hands and saying, "We both need to listen to these guys!" Perhaps, I ask too much.