Article: Oil burden

Last time the United States had an oil crises of this magnitude was in 1980. Even when adjusted for inflation, crude oil at $135 a barrel is more expensive than at the peak of the oil spike in 1980. That is an alarming statistic.

Instead of talking about Oil Bubbles we should be talking about Oil Burden: Véronique Riches-Flores of Société Générale measures the “oil burden” – the volume of oil consumed, multiplied by the average price and divided by nominal gross domestic product. This gives the proportion of the world economy devoted to oil and accounts for the way the world has reduced its reliance on oil since 1980.

The oil burden so measured has risen about 75 per cent during the past year, to its highest level in almost 25 years. This must soon have an economic impact if prices do not quickly reverse. But prices would need to reach about $190 before the burden regained its peak of 1980. It is not clear that prices are at a point where demand will fall.

In the The Post-American World, Fareed Zakaria argues that a "post-American" world order is beginning, in which the role of the United States of America will be diminished, but not irrelevant. Economic, diplomatic, and social power is rising in the rest of the world, a phenomenon he calls, "Rise of the Rest". Although the U.S. remains the supreme military power, the spread of capital, labor, innovation, ideas and information continues to bring down the level of influence the U.S. once had in world affairs.

While the oil crisis of 1980 was solved by an American response, America no longer controls the economics of oil consumption. Take for instance subsidies in the developing world. These may be suppressing economic effects while storing up fiscal problems for governments. Most notably, Chinese consumers are only paying about 10 per cent more for oil than they were 12 months ago, while JPMorgan research suggests consumers in Egypt, Indonesia, Malaysia, Mexico and Vietnam are buying petrol at an even bigger discount than in China.
Mr. Steve chapman concept of an oil bubble and The Chicago Tribune subsequent editorial is not only misleading, but also irresponsible. America no longer controls the price of oil, and while it is still its largest per capita consumer, China, India, and other developing countries that subsidize their oil consumption will continue to raise the price of oil. Most annalists believe that $200/barrel is not out of the question.

We need to solve our oil dependency once and for all. At this junction I consider it to be the highest national threat to our country. Editorials that speak of “oil bubbles” will hinder our efforts for real solutions.