Why? Me Worry?

This article, detailing the results of a simulation focusing on oil crises, is worth reading for an idea of why people are concerned about peak oil. My excellent guests from the Oil Drum gave you a nice rundown this week, but hearing it from Gene Sperling and former CIA directors James Woolsey and Robert Gates has an authenticity that's hard to match.

Incidentally, what really worries me are the arguments from folks like Tim Lee who seem to think that just because the worst case scenario is unlikely, everything will be fine. Their answer to peak oil is that prices will rise, people will stop using so much oil, and we'll figure out other ways to power our economy. Simple. And like most simple things, it's been thought of.

The reason we're all still worried is that the alternate ways of powering our economy are all far more expensive and the long-term solutions are still decades from technological maturity. Tim quotes a comparison of oil markets with a pistachio-loving kid whose parents give him a room full of pistachios and who, after eating 4 million and realizing that new pistachios are tough to find amid the discarded shells, simply strolls into the kitchen to find a new snack. Anyone who thinks the world's fuel consumption can be easily quenched by a new energy snack is ignorant of the issues involved in replacement fuels. A better comparison is the Irish potato famine. Sure the Irish could eat other things and live, but they didn't have access to nearly enough of those other things to replace the dwindling potato crop.

Moreover, oil is not an isolated commodity. If oil costs $100 a barrel, that makes all transportation more expensive. If transportation is more expensive, there are fewer shopping trips, fewer plane flights, fewer goods shipped, etc. Worse, the goods that do get shipped are more expensive, ticket prices are jacked up, inflation hits just as demand falters (stagflation, you'll surely remember, really roared onto the scene in the aftermath of the 73 oil spike). I don't buy into the Kunstler-esque theories of widespread doom and destruction, but the potential damage to the international economy is really serious.

What makes it all so scary is that we're not dealing with static, or even dropping, US demand. China is charging onto the scene with hundreds of millions of new drivers, same goes for India. Both are developing economies in desperate need of oil and energy. China in particular is willing to deal with everyone who doesn't like us in order to worm in on supply markets we haven't cornered (namely Iran and Venezuela), giving so-called rogue states more autonomy and international pull. So at the same time supplies are tightening, demand is set to supercharge, and there are multiple rich countries ready and able to bid up the price. That's bad economic and geopolitical news however you look at it, but it's much worse if you stare straight into the light.