The world is undergoing a historic transition from cheap energy to expensive energy. The multidecade incentives for globalized trade are shifting. The US has been positioned to gain from this change as global supply chains shift from Asia to the Americas.

The world is undergoing a historic transition from cheap energy to expensive energy. Back in the 19th and 20th centuries, energy was abundant, cheap, and improving. In the 21st century, energy is getting expensive, and a lot of things that were feasible then are no longer feasible now.<br><br>The US has been positioned to gain from this as global supply chains shift from Asia to the Americas. There are several factors that have been and continue to influence this: <br><br>1. The decline of the coal industry and its ultimate collapse. <br>2. The shale fracking revolution, which allowed the US to produce oil and gas at prices that no one else could produce at.<br>3. The energy transition, which has driven costs up to levels that not seen since the 1970s Middle Eastern oil crisis.<br>4. The Inflation Reduction Act, which is a federal subsidy to increase domestic energy production and reduce carbon emissions.<br><br>These factors all work to the same end: increasing the energy self-sufficiency of the US and reducing our need to import energy, while increasing the energy security of our allies and reducing their need to import energy from autocracies and state sponsors of terror. <br><br>There are many practical implications of this transition, but very few of them are well understood by the general public. Some examples: <br><br>- The Ukraine war was a consequence of the energy transition. Russia relies on exports of energy to fuel its economy and fund its government. As Europe reduces its imports of Russian natural gas, Russia is seeking to establish new markets for its energy exports in Asia. Ukraine is not a practical war for Russia to fight: the best outcome is for Russia to lose prestige and power, and the worst outcome is for Russia to be occupied by NATO and lose access to the Black Sea.<br><br>- The world is going to start shifting from a system of just-in-time manufacturing to just-in-case manufacturing. Just-in-time manufacturing relies on cheap fossil fuels to ship goods across the globe. Just-in-case manufacturing relies on planning ahead of time to have the stockpiles and redundancies that you need to avoid failures and shortages.<br><br>- The recent Middle Eastern peace treaties between Saudi Arabia and Israel were facilitated by the energy transition. Saudi Arabia has historically relied on its oil exports to be a counterweight to Iran. As the world reduces its reliance on oil, Saudi Arabia is shifting its anti-Iranian alliance from the US to Israel. <br><br>These are all just a few of the ways that this transition is going to play out. I’d love to hear other thoughts.<br><br>[Edit: I want to clarify one thing. By expensive energy, I do not mean that oil is going to get more expensive. I mean that oil production is going to require more energy to produce. Oil production is going to require more drilling and more maintenance, and there will be less oil left at the end. Renewable energy will also have higher embedding energy costs as the supply chains get longer. I also do not mean that oil will be more expensive in terms of money. I mean that the energy cost of producing oil is going to be higher. ]