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47 comments on What would $120 oil mean for the global economy?
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I agree with David Smith that modern economies can tolerate higher oil prices than they could in the past, but all that means is oil prices will go much, much higher before there is some demand destruction. Energy is still essential a modern economy, even if it represents a smaller share of GNP.
Also, much of the demand coming out of emerging economies is artificial because of price caps and fuel subsidies in those countries. They are not getting the price signal because their governments are paying the difference. Clearly this is unsustainable.
I am not sure this is true. Unlike the 1973 Oil Embargo where shortages hit everyone equally, current price escalation progressively punishes based on economic strength. Foreclosures are an example. Impact on weaker economies and basic food is another. Food transport is 97% dependent on oil; it does not matter how much corn there is in Iowa, if you cannot transport it to Chicago.
Economic momentum hides the nature and rate of the decay. People at the lower spectrum of economic strength have a weaker voice, but they have mass and growing desperation.
Economic Growth equals Energy Growth times Efficiency Growth
Crude Oil supply stopped growing in May 2005. There is still momentum but that started decaying when crude oil production stopped growing. Oddly enough, 2005 is when the EIA stopped updating the following graph (I do not believe in conspiracy, just incompetence). I added from 2005 and the foreclosure curve.
A major risk is that policy makers, insulated from consequences by economic advantage, have and are not acting relative to the severity of crisis. Without hope and understood course of action, the social fabric may shred along economic strata.
Bluntly, Peak Oil is a civilization killer and we are facing it with a total lack of leadership. Or, maybe more correctly a "let them eat cake" type of incompetence.