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6 June 2008

The Coming Energy Wars

This spring, average gas prices in the U.S. started edging towards $4 per gallon, and America's notoriously profligate ways started to change fast. Americans are driving less, using mass transit more, buying fewer big cars, and shopping with less abandon.

There are more changes to come. Oil prices climbed from $10 per barrel in 1999 to $95 in 2007, and have continued to climb. Many are realizing that long-term demand, led by China and India, is only going to grow, and that the supply threats such as falling investment, industry bottlenecks and downward estimates of big field reserves aren't going away any time soon. The $200 per barrel barrier could be passed within the next two years.

Skyrocketing oil prices are already causing real pain for ordinary people and threatening global economic growth. The price pressure is now particularly acute in big emerging markets like China and India. Americans now making up for their losses at the gas pump by flocking to Wal-Mart for cheap Chinese goods may soon be out of luck. $200 oil in 2009 would be a painful shock, not just a tax on gas guzzlers. No industry will be unaffected.

Some analysts are predicting a shift toward regional trade, and even a major reversal of globalization itself, due to rising transport costs. A major increase in oil prices would also boost the fortunes of troublesome oil autocrats throughout the world.

There is increasing concern that as higher oil prices force many Asian economies to reduce or even cut their generous fuel subsidies, growth will slow sharply, and there could be social unrest as the world's poorest become more desperate. As areas like the Mideast and Africa, Russia and Venezuela continue to rise, there will likely be increasing energy greed, aggressive behaviors and neocolonial actions. Blood will almost certainly be spilled.


* Newsweek June 9, 2008

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