Are you prepared to pay $8 a gallon at the pump?
I intended to title this: Are you prepared for oil at $200 a barrel? But most people would more easily relate their daily life to gas pump prices than to oil barrels. So: Are you prepared for gas at $8 a gallon? If not, read on.
Economic predictions can be dismal. So when we hear that in the next couple of years the gas prices may reach $8 a gallon, we say, "No, way!" We hope that this will not happen, because it will inflate the price of almost everything in the world and may take the world into an economic depression which directly affects our lives.
But before we adopt this state of denial, let's look back to 2004. The price of oil was then $28 a barrel. I remember then reading a newly-published book, The Oil Factor, by two stock market experts who predicted that before the end of the decade oil prices would top $100 a barrel. I could not believe it. But in 2008, this has already happened.
Stephen Leeb, the co-author of the book, has published another one with a scary title: The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel. Predictions need not be destiny. To do something about the rising oil and gasoline prices, we need to understand its causes.
I can think of three factors.
First, the enormous international demand for oil, not only in the United States, Europe and Japan, but also increasingly in China, India and other parts of the world. Tight supplies barely satisfy the global thirst for oil.
We have three solutions: (1) increase oil production; (2) switch to other energy resources; (3) decrease our demand for oil. The first two options would take years. So the immediate solution is to decrease our consumption of oil.
Simple ways of energy conservation can be extremely helpful, such as expanding public transportation, periodic days of no driving and increasing the energy efficiency of our vehicles, buildings and factories.
The second factor for increasing oil prices is the violence and political instability in various parts of the world. These problems cannot be solved by one country alone; they require international cooperation, economic relations and trade, and diplomacy of dialogue and peace.
The third factor is the weakening of the U.S. dollar versus other currencies. In 2004, for example, one euro was $1.10; now it is $1.50. This brings us back to the question: Are we prepared for gas at $8 a gallon? The reality is that if we drive in Europe or Japan, and exchange our dollars to those currencies, the gas will cost us $8 a gallon. So there are millions of people who are already paying that price.
Currently the United States consumes a quarter of world energy; we need to conserve more. Then oil and gasoline prices will come down, and this will give us time to diversify our energy resources. This year's presidential election is also an important opportunity to bring the vital issue of energy to the forefront of public and policy debate.
* RASOUL SORKHABI is a research professor at the University of Utah's Energy and Geoscience Institute.