How will life be with oil at $200

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By Gioietta Kuo (China Daily)
Updated: 2008-06-10 08:08

As the price of oil exceeds $135 a barrel, Goldman Sachs, the New York investment bank, predicts that the oil price will reach $200 a barrel in the next year.

Mamdouh Salameh, advisor to the World Bank and UN Industrial Development Organization, said that if not for the Iraq War, the oil price would be $40 a barrel today. It is the United States' and Britain's invasion that led to the current oil crisis.

Iraq apart, although speculation must play a part, there are two fundamental reasons why the world is in a severe oil crisis.

First, there are many signs that oil is "peaking" - that is the amount one can extract from the ground is getting less and less, so it is becoming difficult to increase production.

Second, unlike the oil crisis of the 1970s, when politics was involved, the present crisis is much more severe and in so far as there is a shortage of oil in the ground and the world being unprepared for alternative fuel to replace it, the problem is basically insoluble.

There have been fuel protests in Europe these weeks and the governments have tried to pacify them with small fixes. But these are small measures that cannot alleviate the real problem.

The real problem is the world consumes too much oil and is not ready to replace the shortage with any other forms of fuel. The alternatives are: fuel cells, hydrogen fuel, ethanol and biofuel for cars; and wind, solar and nuclear for power generation.

So, it would seem that we shall have to live with $200 a barrel of oil. Not that alternative fuels would cost less. So what will our world look like?

Russian oil output has gone into decline, Saudi Arabia has shelved plans to expand production. Oil price is sure to be $200 or more.

Pessimists say we are already going to see a decline in oil production. Optimists say we have another 20 years. In any case, this does not give us much time to do something about the future.

We are already seeing the beginning of the end of the era of cheap air travel.

In Britain, new houses will have to be zero carbon - burning no fossil fuel such as oil - by 2016. Insulate is the keyword, it is the cheapest way.

Effectively there is oil in everything we use. Plastics and pharmaceuticals are all oil based. About 10 calories of oil are burned to produce each calorie of food in the US and farming a single cow and getting it to market uses as much oil as driving 4600 km by car.

More food will have to be produced locally rather than transported from far away.

Oil is a key component in fertilizers. Expect a great rise in food prices.

Poor countries will be hit by both high fuel and food prices.

China and India may have to slow down their industrial growth rates as the whole world's growth rate slows down.

Whenever there is a scarcity of a raw material, like oil or water, expect conflict, starting from verbal skirmishes eventually growing into military conflicts. It is a rule that big nations try to gobble up small nations which have more resources. Back we go to Iraq. The future is not pretty.

The author is a senior fellow of American Center for International Policy Studies amcips.org

(China Daily 06/10/2008 page9)