The price of oil spiking at the same time credit is falling is one of capitalism’s most musical cacophonies!
Pundits and policymakers are debating whether the oil spike reflects real shortages in supply, or is a “bubbIe” — a mania on Wall Street.
Of course those who believe the oil prices and speculation on future prices reflect an irrational fear of shortages expect the “bubble” price to fall. I am inclined to think there is both a bubble and a real supply problem, playing off each other here.
On the one hand there are not the real oil shortages — yet — to justify the soaring prices. Even when Saudi Arabia raised production a few weeks ago, prices still went up. However, there are some shortages of refined supply capacity, or at least online production, coming from refiners in Russia, China and Saudi Arabia, according to a report in The Economist. U.S. refineries are currently at only 85 percent capacity, 10 percent below optimum for maximum profitability, according to the U.S. Petroleum Institute. But the reason they are not filling the supply gap is that more and more refining is now being handled by the oil-producing nations. The U.S. refining share has fallen from two-thirds of world supply to one-half in 10 years’ time.
Rising oil prices combined with no credit is bringing a major structural showdown.
The oil-auto-highway-suburban-exurban infrastructures that have so strongly influenced all social and economic development for the past 70 years are crumbling. The “peak oil” theorists are probably right — bubbles may come and go, but the long-term trend for gas prices is up, up, up. We will not likely see $3.50 a gallon again. Long commutes are going to go from numbing to impossible. The shift to energy-efficient and affordable transportation and housing is going to happen. But it will demand sharp changes in attitude toward community, municipal and broader public services.
A greater degree of smart socialization will be required. Regardless of the ultimate fate of the oil-automobile-infrastructure may be, the rising costs of fossil-fuel-based energy will require big public investments in mass transit and light rail soon, long before any emerging technology can be significantly deployed. Nearly as big investments will be needed to support the much denser housing solutions that will be required. But in addition, preservation and enhancement of quality of life depends on investments in shared services and green space, strong and smart public zoning and development commissions. Education, health care and retirement services will all be powerfully affected.
Even with our best efforts, we may still fall prey to the potential volatility of the oil crisis. Now that energy is also linked to rising food prices, other profound external shocks from world instability and security nightmares are not unlikely.
So I think a period of heightened class, as well as social, conflict is in the cards.
There will be intensified competition among different areas of the country — between regions, states and communities, between urban and rural areas, and so on —for resources to respond to new, powerful public investment demands.
At the same time, while every day our country becomes more diverse, and while there may be plenty of reasons to pick a fight in the scramble that’s coming, there is also a multi-ethnic, multiracial culture emerging that is somewhat immunized against divisions that pit one against the other. The power of Barack Obama’s presidential campaign among youth of all races and nationalities demonstrates this fact.
No area of life is likely to be spared the pain of the structural changes the long-range energy crisis (combined with the other already overwhelming pressures of globalization) will engender. It will be a time in which many of us will learn new ways of living and thinking — tasks at which youth always excel.
Even the seeming silver bullet of a major breakthrough in hydrogen or nuclear technology (fusion) raises inescapable international security and governance questions. I can recall no high-energy technology breakthrough in history that did not also have military dimensions. No silver bullet is at present in sight. And the truth is that deployment of any new infrastructure technology will be incremental and likely very expensive.
There will be no escape.