According to a survey of economists, if the price of oil should rise to $100 a barrel, the result would be a recession of the U.S. economy. The rider, however, is that it is unlikely to get that high, according to the panel of 195 National Association for Business Economics forecasters. Should we be reassured by this, or not? That such a question needs to be asked is indeed astonishing, and pinpoints the clearly precarious nature of an expanding global economy fuelled by a relentless consumption of hydrocarbons by the industrialised nations, along with those growing economies in Asia which similarly rely on oil. Indeed, some industry insiders including the Algerian Energy and Mining Minister, Chakib Khelil, are of the opinion that the continued growth in China has caused such an upwardly consistent trend in oil prices that they are likely to approach $100 a barrel by the end of 2006.
As Chevron CEO, David O'Reilly has pointed out, half the world's exploitable oil has now been used, and although it took us 125 years to use the first trillion barrels of it, we will use the remaining trillion in just 30 years. This is terrifying. It means that we have reached the point of peak global oil production, but with the taps now fully open. This prediction is endorsed by Ali Bakhtiari, head of strategic planning at the Iran National Oil Company, Dr Colin Campbell, former executive vice president of Total-Fina and Mathew Simmons, an energy investment banker, who too believe that global oil production is about to peak.
Chris Skrebowski (whom I mention in my previous posting) is more specific, and has predicted that we are just 1,500 days away from "Peak Oil". This is not good news, considering that around 90% of all transport relies on oil, and around 95% of all goods sold in shops depend on such means to get them there in the first place. Food production is almost entirely dependent on oil or gas to produce fertilisers and pesticides, and of course the farming machinery and ultimate transportation of meat and crops is also powered by hydrocarbons.
Instability in the Middle East could spike the price of oil: for example if Iran, feeling increasingly beleaguered, decided to impose an oil blockade against the U.S. or Britain. How in all seriousness can the West impose "sanctions" against Iran, when it is the world's third greatest oil producer? Are we to believe that our governments will suddenly refuse to buy their oil from them? It is nonsense.
The aviation industry is described as "quaking" at the prospect of the $100 barrel, which will in effect introduce an economic machete to it. Cheap package flights will be a thing of the past, as airlines can no longer afford to offer them, with the knock-on effect that rising ticket prices will force down demand, and some airline companies out of business. However, compared to food production and supply this is the least of our worries.
The scenario is clear. The cost of everything will increase. Putting more expensive fuel into cars will take president over fuelling planes for foreign holidays. If it should become a choice between the car and food, then cars will litter the expanding road-networks, which are also built by means of oil. If people are unable to travel, they will be forced to act on a more local level.
There is no doubt about it - life is going to change, and perhaps become more boring in the sense of less luxury items (the "latest"...) on sale. However, I suspect we will need all our time and ingenuity to develop a programme for sustainable living. So, $100 a barrel by the end of the year or not, change will come sooner not later; there will be no choice, the economics of oil-pricing being merely a mirror to the imminent dearth in the physical availability and supply of oil.