In past decades $100 for a barrel of oil had been touted by end-of-the-worlders as an apocalyptic event that would bring about the demise of modern industrialized civilization. That psychological barrier was surpassed on January 2, and while the mainstream media were quick to jump on the story and play up the drama, the real impact of this episode was minimal. If prices are to remain constant at the $90 mark—as many commodities analysts believe to be the new norm—there is no denying that associated costs will rise.
Over the past 100 years oil has become the life blood of Western civilization and our absolute dependence on this natural resource cannot be overstated. This is precisely why no matter how expensive oil becomes, people will still continue to behave as if it was business as usual. As much as any staple crop, oil has established itself as essential to our existence, thus the higher price of oil will not bring about a dramatic change in our behavior and attitudes. At least not quite yet.
While the $100 price does have a marked psychological impact on consumers and analysts, it’s more bark than bite. In real terms oil is still remarkably affordable to the middle-class in all industrialized nations, especially in North America where the cost of filling up a tank of gas remains less than half of what it costs to a person in Europe, mostly due to taxes levied by European governments. Even as North Americans complain about the rising costs associated with increasing oil prices, an elementary shift in our attitudes and corresponding changes in our lifestyles are still a long way away.
The good news is that North Americans, led by the infinite wisdom of Hollywood stars, appear to be coming about, embracing smaller, more fuel-efficient cars along with emerging alternatives such as diesel power and hybrids. However, even as a fringe minority in the West begins to demonstrate the first inclination to conserve and reduce our addiction to oil, they may already be too late.
The millions of people in China and India who are emerging into vibrant middle-class societies, yearn for the same things we in the West have taken for granted for so long. Nearly six million new cars will be on China’s roads in the coming year, and they will require millions of barrels of oil to fuel them.
To put things into context, global proven reserves (oil known to be in the ground) is estimated at nearly four and a half trillion barrels, which means that there exists 140 years’ supply of oil on this planet. Indeed extracting usable fuel from oil sands in Alberta as well as major deposits of oil shale in the U.S. requires a more extensive refinement process and will inevitably result in the continued rise of oil prices.
The demand for oil in industrializing nations, driven by industrial and consumer demand in emerging economies, will only continue to grow. Many speculate that this competition between different societies for a finite resource will bring about World War Three. It just might, though definitely not in our foreseeable future. Meanwhile, in the coming months we will learn to cope with $100 oil, and just as surely we’ll kick up a fuss when we hit $200 a barrel a few decades from now. Maybe then the crisis will be for real.
