The current oil crisis is based on demand and overtaxed production

The oil crisis in 1973 was a supply side problem for the United States. Now, the reasons are not so simple, ranging from supply concerns due to emerging economies, as well as terrorist troubles. So the fundamental difference now is that our current oil crisis is related to increased demand and diminished production capacity.

Current oil production doesn’t run with much spare capacity. That’s why disruptions in the petroleum distribution network seem to have such immediate impacts on pricing. Since oil is the obvious lubricant of Western Society, it’s no surprise that enemies of the West have targeted oil production as one of the main weapons against the Western Way of Life. Without cheap crude oil, our nation is in big trouble and our economy will sputter greatly. So the terrorists have aimed squarely at a target that they have little trouble hitting: our pocketbooks.

Added to the primary fact of terrorism is the gas guzzling mentality of the two emerging economies of India and China. India and China are having an old school industrial revolution in the 21st Century. Both countries are going through transportation booms, and China, Venezuela, and India are even exacerbating the problem by issuing huge gas subsidies so they can get their populations hooked on cheap gas that probably is nothing more than a pipe dream.

In 1973 the United States went past its’ peak in oil production

America went from being a net exporter of oil to a country dependent on oil in the same way a junkie needs his next fix. And one thing is starting to become clear: OPEC oil production is a big problem and no one seems capable of stepping up and meeting demand.

Soaring energy prices have already cause the governments of several Asian countries to dump subsidies for oil. But it would require the economies of Russia, Venezuela, China, and India to do the same in order for the impact to be sufficient to create a slackening of demand for the “Black Gold.”

This could happen if fuel subsidies were suddenly scrapped in developing countries and among the OPEC producers, so dousing demand. Cost pressures have forced Malaysia, Indonesia and Taiwan to cut energy subsidies, but China – with $1.7 trillion in foreign exchange reserves – is hardly strapped for cash. OPEC producers are under no pressure to abolish subsidies; as the oil price rises they get richer.

Demand from the Global Village will stay up, causing prices to remain high

Without a price increase for consumers in OECD countries, there’s little chance for prices to come down on oil. If prices are $200 a barrel with oil at peak production, one can only imagine how high the prices will soar if production begins to decline, as the GAO expects it to.

Most studies estimate that oil production will peak sometime between now and 2040. This range of estimates is wide because the timing of the peak depends on multiple, uncertain factors that will help determine how quickly the oil remaining in the ground is used, including the amount of oil still in the ground; how much of that oil can ultimately be produced given technological, cost, and environmental challenges as well as potentially unfavorable political and investment conditions in some countries where oil is located; and future global demand for oil. Demand for oil will, in turn, be influenced by global economic growth and may be affected by government policies on the environment and climate change and consumer choices about conservation.

With peak oil seemingly inevitable, a transfer of wealth to oil producing nations is coming at an unexpectedly fast rate. This causes all variety of political issues, due to the fact that so many of “The West’s” traditional enemies control a large portion of the supply of oil. This problem is not being ignored by leaders, who seem to be picking up the intensity of the energy debate. With Western democracies buying so much oil and seemingly being poised to run out, a technological innovation (something that has always bailed out America in the past), seems like a logical solution to solve the oil crisis in one fell swoop.

Continued from Oil – The Blood of the Earth – Part Two – The Historical Dominance of Oil. Continued in Oil – Blood of the Earth – Part Four – The Effect of High Oil Prices on Business. This is part three of Oil – Blood of the Earth.

Without oil there would be no United States or modern culture

To examine the history of oil use in the United States, you need look no further than to the story of John D. Rockefeller and Standard Oil. From the time that oil was first pumped out of the Drake Well in Pennsylvania, the search for, and exploitation of oil has been a consuming passion as well as a profitable pastime for many.

No one was better at making money from oil than John D. Rockefeller and his Standard Oil Company. He was ruthless in his quest to monopolize the industry, and in so doing, invented modern business. Rockefeller’s actions with Standard Oil, although considered unethical or even illegal by many, became the blueprints upon which multi-national corporations were designed.

Oil became indispensable for both consumers and business, who relied on it nearly exclusively for transportation. As oil became readily available, consumers were able move further away from their jobs than ever before, and interstate commerce boomed. People quickly became accustomed to the additional freedom they received from having an automobile, and the increase in consumer choice that resulted from businesses being able to geographically expand.

Businesses and consumers became so addicted to cheap oil, that by 1973, when a crisis threatened that cheap oil supply for the first time, it created pandemonium in the public markets. The first actual gas crises was a preview for what will undoubtedly happen if oil goes from abundance to scarcity.

Oil is an absolute necessity for the following segments of society:

1. Business
2. Consumers
3. Government
4. Military

In essence, everyone needs oil. In a world of diminishing oil, there would be increased competition for the remaining resources. On the above list, it’s easy to imagine that consumers would be on the short end of the stick in a situation of chronic oil shortages.

The modern United States, and all of the other countries around the world basing their economies on the “American Model” require increased consumption of resources to continue to flourish, and the increased consumption of petroleum is the main way to sustain that growth. With diminished, or even non-existent oil resources, none of these societies could easily continue their normal routines.

Running out of our primary transportation fuel is the single largest issue facing our society. And experts agree, that we need a solution long before we run out. In the next articles, we’ll examine possible solutions.

Continued from: Oil – The Blood of the Earth – Part One – Overview. Continued in Oil – The Blood of the Earth – Part Three – The Historical Causes of the Oil Crisis.