That's the title of an article in the latest Newsweek that looks at the potential future and the economic impacts of soaring oil and gas prices. If accurate, the future will not be pretty nor will it be painless in the USA or elsewhere. As a former in-house attorney for an oil company, I am hardly someone who is violently anti-oil companies. I know full well the costs and high risks involved in both exploration ventures and the number of "dry holes" drilled for each successful producing well, not to mention the challenges of overseas exploration and the difficulties of dealing with foreign governments. However, as one who lived through the energy crisis of the early 1970's, the USA and its citizens have been on notice of the potentially impending energy cost nightmare for over three decades. Rather than face up to the reality, both the U.S. givernment and the citizenry have closed their eyes to the situation, which may be about to come home to roost. During the married phase of my life, I lived for 20 years in upscale suburbia in Virginia Beach where (i) there is virtually no public transportation that's worth a damn and an auto is needed to go just about anywhere, and (ii) countless soccer moms drive around in gas guzzling behemoths that serve no useful purpose other than to evidence conspicuous consumption: Suburbans, Hummers, Escalades, Navigators, etc. Hopefully, the coming economic pain will result in needed conservation efforts and changed habits that should have begun in earnest 30 years ago. Here are some story highlights:
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This spring, America hit a historic point. With average gas prices per gallon edging toward $4, America's notoriously profligate ways started to change fast. Americans are driving less, using mass transit more, buying fewer gas guzzlers, indeed shopping less wantonly in general, and lowering their previously unshakable confidence as consumers. Suddenly, Americans are acting differently; if not exactly like Swedes, then not quite like themselves, either. It's a shift that could change the world.
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And there are more changes to come. So far the price shock has triggered the most obvious consumer shifts in the United States. Europeans, already greener, are also are buffered by a stronger currency, and Asians are protected from the spiking price of oil by subsidies that control the impact on gas prices at the pump. But if oil prices continue to rise, and the subsidy dam breaks, as seems likely, the energy revolution now transforming America will spread.
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As the per-barrel price climbed over the last few months, with futures reaching $135 last week, the consensus began shifting to a new more gloomy view: that not only would long-term demand, led by China and India, continue to grow, but that the supply threats, including increasing conflict, falling investment, industry bottlenecks and downward estimates of big field reserves in major oil states—aren't going away any time soon. Now many (though not all) serious people take $200 oil—and the prospect of another '70s-style oil shock—seriously.
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Oil drives so much of the global economy, it's almost impossible to fully imagine the world of $200 oil. No question, the shock will force nations to go greener much faster than now, particularly by conserving energy and developing and adopting new non-fossil fuels. But none of this can happen full stop in six to 24 months. So the predictions tend to be gloomy: some analysts see a shift toward regional trade, and even a major reversal of globalization itself, as rising transport costs make it too expensive to ship many kinds of goods long distances.
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No industry will be unaffected. Any company that moves goods or people needs oil. At $200 oil could make the long-predicted death of Detroit, or at least one of its Big Three, a reality. Airlines are vulnerable too. Skyrocketing jet fuel prompted American to announce it would cut flights due to the grounding of numerous older, less fuel-efficient planes. . . . The oil-induced depression of the American consumer may be a harbinger of what's to come elsewhere. In the United States, consumer confidence is now at a 15-year low. Energy Department data show that $4-a-gallon gas is finally forcing Americans to cut back on driving; this year gas consumption in the country is expected to drop for the first time since 1991.
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With oil futures up 40 percent in just the last two months, the sense of an accelerating shock is already palpable in the United States. While American automakers were moving slowly toward smaller cars before the spike, sales of SUVs and pickups are now falling so fast, they appear to be caught flat-footed. "At $200, GM tanks," says energy expert Philip Verleger. "They just don't have time to fix their fleet."
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So, what's to be done? For starters, policy makers might stop grilling big oil companies about why prices are so high (since they now control only a small percent of known reserves, it's largely out of their hands), support smarter green initiatives (wind and solar credits rather than ethanol boondoggles) and stop pandering to voters with subsidies and gas-tax cuts that ignore the new reality—oil is a finite resource, more people want more of it, and the profligacy with which we've used it is going to change. . . . By some estimates, the world could save 25 percent of its oil usage with simple measures like driving the speed limit, turning off lights, and fully using the green technology we already have (hybrids, better insulation, etc, etc).
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