Some argue that the effects of high transportation costs will actually reverse globalization.

Globalization is reversible. Higher energy prices are impacting transport costs at an unprecedented rate. So much so, that the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today. In fact, in tariff-equivalent terms, the explosion in global transport costs has effectively offset all the trade liberalization efforts of the last three decades. Not only
does this suggest a major slowdown in the growth of world trade, but also a fundamental realignment in trade patterns.

In fact, if globalization can be reversed, the entire philosophy of business towards making it cheaper could also reverse. Consumers have become reliant on purchasing prices for the cheapest amount of money possible and business have become accustomed to providing this type of exemplary product at a low cost to them. High transportation costs threaten the very paradigm that modern business has built itself on for the last two decades.

In deed, many indications are in place that show business is adjusting to higher transportation costs by passing the price increase a long to consumers and by laying off employees. Slowed production equals higher employment, which puts a further downward pressure on consumer demand. It’s a vicious cycle.

Inflation is already high in India, in large part due to increased transportation costs as well as a price spike in many commodities.

India’s inflation accelerated more than estimated to the fastest pace in 13 years, suggesting the central bank may add to this month’s two interest rate increases.

Wholesale prices rose 11.42 percent in the week to June 14, after gaining 11.05 percent in the previous week, the government said in a statement in New Delhi today. Economists surveyed by Bloomberg News predicted an 11.22 percent increase.

Central banks worldwide are considering freezing or raising interest rates in an attempt to slow inflation. But if much of the inflation is coming from increased transportation costs, it’s unlikely measures concerning interest rates will have much of an affect.

Right now, a reverse in globalization efforts, a constriction in revenues, and more expensive raw materials costs all bode poorly for business at large.

Continued from Oil – The Blood of the Earth – Historical Causes of the Oil Crisis.

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.