Cheap Oil and the American Century

At the dawn of the 21st century, America stands astride the world like a great colossus. Our armies have troops in almost every country, our economy is 25% of the world's economy, and our language is the language of business and internationalism. It seems to be the American century.

This century will see the end of cheap oil, and of oil altogether as an energy commodity. That's right, by 2030 even the optimistic USGS admits that world oil supplies will have peaked and will be on their way down. World experts predict the oil peak will happen in the next couple years. It may have already happened. After the peak, even if world demand for oil stays steady over time (and it is rising), prices will only go up. Eventually, they will hit $100 a barrel. Estimating from today's pump prices, I guess that translates to at least $3.80 a gallon for gas.

But that's not all. By 2100, petroleum oil will be rare and prohibitedly expensive. Oil wells will still exist and coal oil and oil shale will probably help the supply, but demand will be sky-high. Once it hits a certain price, oil will no longer be used for transportation by the public. It will only be used for the production of chemicals and for powering military equipment.

What will $3.80 a gallon for gas do to the American economy? Will it end our economic and military dominance of the world?

It is obvious that expensive gas will hurt the American economy. It will cause a recession, possibly a massive, long-term one. However, if we as a nation are farsighted enough to invest today in the development of alternative sources of energy, we can ease the transition. We need to invest now, and invest heavily, because 10 years from now may be too late. Despite talk of hydrogen and electric cars, they are not currently in production and will require time to develop, produce, sell, and provide infrastructure for. Time measured in decades.

And what of alternatively powered ships? Planes? Eighteen wheelers and transport trucks? Tractors and skidders? Bulldozers? Chainsaws? Snowplows? Motorcycles? These are the engines of global commerce, and they will sputter without cheap gas. No alternative-fuel designs have been developed for them as of yet. More decades that we can't afford to wait.

And how will we produce plastics? Fertilizers? Pesticides? Asphault? This will not be an easy switch. Modern economies are addicted to oil. We are dependent on cheap energy and cheap products from oil.

If we are not farsighted and wait to develop alternative energies, then we may see a worldwide depression as the cost of transporting and producing goods zooms into the stratosphere, disrupting international and long-distance trade. This depression is likely to last until semi-cheap alternatives have been developed and disseminated to the world. How long this could last is unknown...perhaps 10 years, 30 years. No fuel we can develop in the near future will be as be cheap as oil, but it will have to do.

I expect that expensive gas will thoroughly disrupt financial markets, cause global political instability, and lead to disruptions in shipping and commerce. In such a world, it is entirely possible that America's global economic and military dominance will end. If our current refusal to develop alternative energy and conserve energy continues, America will be at a severe disadvantage in the energy-poor world of the future.

Our fortunes are yoked to the falling star of oil. When you are flying, there always is a good time to deploy your parachute. Ours has come.