It’s never coming back

When OPEC first embargoed oil to help pay for the Yom Kippur War in 1973, the price of a barrel of oil quadrupled in only a couple of months. That kind of artificially-imposed shortage was massively disruptive, but it’s the sort of thing that could be remedied easily. The problem we have now is that almost nothing about this is artificial – it’s taken a decade for the price to quadruple, but here it is. Growing demand from emerging markets will sustain the price hike – Econ 101 again, remember – and as long as the dollar is weak and the price of oil is demarcated in dollars, the cost of oil will be disproportionately high in the United States.

So what is to be done? There’s a lot of talk about windfall profits taxation and pursuing speculators, but there’s very little there there. See above about how this has not been a speedy artificially-induced shock. You might nip a little back from ExxonMobil, but not enough to make a material difference. OK, how about ramping up production? If we approved unlimited offshore drilling and opened up ANWR right this second, you wouldn’t see the oil start to flow for almost a decade – and when it did, the material impact on a gallon of gas might be a nickel. For all the hue and cry about it, there’s not some massively huge vat of oil that we could have by Wednesday if it weren’t for those meddling kids pesky environmentalists.

Other options – tar sands, oil shale, biodiesel, etc etc – are only commercially viable now because the price of oil is through the roof. These are not things that are going to bring back the days of glorious cheap fuel – they are things that will help keep the current price from exploding, because they will produce more goods to fulfill demand and thus maintain equilibrium. If the price of oil dropped by 25% tomorrow, there would be no point in commercial development of these alternatives, because they wouldn’t be profitable.

Face facts, people: you will never again in your life see plain old 87-octane gasoline at $2 a gallon. Hell, you may never see it at $3 a gallon. This price increase is the result of market forces, which means that the price of oil is never going to drop precipitously until demand plummets or supply explodes. Which ain’t gonna happen.

So what is to be done?

In the short term, not much. Everything is planning for the long term. We’re just going to suffer for a few years while we come up with the workaround. In this respect, maybe more drilling seems palatable, but you’re just kicking the can down the road at that point.

Things that need to be done: more transit. Problem is, outside an urban environment, it’s tough to push transit – thinking of where I lived growing up, I don’t know that there’s any way a town bus could have been useful, because everyone’s too scattered. The transit solution involves getting it somewhere it could be useful – take Birmingham, for instance, which desperately needs some sort of commuter rail down 280 and 65 between downtown and the white-flight suburbs to the south. In a town with no commuter infrastructure, where an undrained valley means that the wrong sort of weather holds smog in one place for five straight days, the potential improvements in congestion and climate just from cutting rush hour traffic are plentiful.

Something else that needs to be done: different vehicles. Here in SiliValley, people are starting to go for the ol’ Vespa scooter in a big way. There are anecdotal tales of families selling one of the his-and-hers Priuses (Prii?) for a Vespa, because the Prius can be sold for exactly what they paid for it and a scooter with double the gas mileage purchased for an order of magnitude less. I know for a fact that I could totally get by on a 150cc scooter for my commute, which would get me at least triple the mileage I get now (although to be honest, it would probably take years and years before the fuel savings would pay for a scooter). People are grasping for old Geo Metros and Honda Civic VX cars from the early 90s that get in the 40s with a plain ol’ gasoline engine. Hell, people are buying the Smart Fortwo out here. I am sure that the VW Polo Bluemotion would go like crazy in urban areas. And then there’s the Chevy Volt, which is not a hybrid so much as it is an electric car with an onboard generator which is completely unconnected with the drive system; it’s just there to charge the battery when it’s not plugged in. The auto industry doesn’t turn on a dime, though, so I suspect it’ll be a couple or three years before that gets retooled.

Long story short: we’re going to be here a while. Better start adjusting, because we’re never getting back to normal. This is the new normal.