Oil, the world's most vital commodity, may threaten another U.S. economic recovery in 2012
If the price of oil, which traded Monday morning at $99.70 per barrel, vectors above $100 on emerging market GDP growth and tensions over Iran's nuclear program, this will be the United States' third oil shock since 1970 -- the fourth if you count the $147.27 per barrel price surge reached during the leveraging bubble in 2007. The first two oil shocks occurred in 1973-74 and 1979-80.
Further, whether it's the third or fourth, it represents bad news for the United States from an economic policy and from a national security / foreign policy flexibility standpoints.
Moreover, although short-term several key lobbies/interest groups benefit from the U.S.'s high per capita oil consumption (primary big oil, and related sectors, such as refining and petroleum product delivery), the nation at large is not well-served. Oil results in a net-outflow of wealth -- dollars that with a national energy policy would remain in the U.S. and serve as a source of business investment.
What's more, the irrationality of U.S energy policy -- a better name for it would be the U.S. energy non-policy -- boggles the mind. The United States is the largest, most-technologically advanced economy in world, and it's at the risk of being paralyzed -- tipped in to a recession -- again -- due to its vulnerability to imported oil, and its overconsumption of oil, in general.
Think about it: a nation with a sophisticated, high-value-added economy... lurching from energy crisis to energy crisis.
More U.s. Drilling Won't Prevent Another Oil Shock
The ominous reality? Increased drilling in the United States can't meet the nation's daily consumption of 18.7 million barrels per day (bpd), hence it has to import to make up for the deficit. In November 2010, the U.S. imported an average of 8.25 million bpd, about 2 million of which came from Middle East oil producers.
Middle East unrest could send oil above $125 per barrel, and that would probably push the average U.S. price for unleaded regular gasoline, currently $3.23 per gallon, above $3.70 later in 2011. Add the normal price increase stemming from the summer driving season's increased demand, and the price of gas could push $4 per gallon.
Further, the above assumes oil tops at/near $125 per barrel. There are other, more-sobering scenarios. If oil exporting nations Iran and Venezuela did not bring their product to market, oil could shoot above $150 per barrel.
Oil/Energy Analysis: Oil still has the United States over a barrel, pun intended. It's stunning how policy makers have left an advanced, sophisticated economy vulnerable to the price of crude -0- the commodity literally has the ability to stop the U.S. economy in its tracks. An oil shock can wipe-out disposable income, dramatically increase business operating costs, and spark cost increases across the commerce spectrum. Why then, has the U.S. tolerated such a condition?
The primary reason is big oil -- oil companies have the largest stake in maintaining the status quo. Congressional Republicans who accept oil industry campaign contributions, but also selected Democrats, have been reluctant to commit public funds for infrastructures for alternate energy forms -- including natural gas -- to the nation's detriment. The result? A massive oil bill for American consumers and a U.S. economy that remains one Middle East crisis away from being driven in to a recession. It's an irrational stance that has to change, if the United States hopes to remain a great power in the 21st century.