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June 23, 2008
When will the economy collapse from high oil?
I dunno. but what I do know is that most of the world and especially our political class are in total denial that anything other than normal market stuff is going on. The more dangerous among them actually think that the government can "solve" the oil problem. Every US President has since Eisenhower has promised to make us more "energy independent" and EVERY ONE HAS FAILED. The US is more dependent on foreign energy now than ever. And drilling here won't do anything for 8-10 years if you started yesterday. so....
How big is the problem? Multiplying production (barrels per year) times the oil price (dollars per barrel) gives a total cost in dollars per year. It's an enormous number; tens of trillions of dollars per year. To put a scale on it, the three thin curves on the graph show the oil cost in contrast to the total world domestic product; the annual value the goods and services added up for all the world's countries. The three curves show the oil cost at one percent, two and a half percent, and five percent of the total world economic output. At $136 this morning, we are over six and a half percent.
Oil production obviously cannot consume 100 percent of the world's income. My intuitive, uninformed guess is that it cannot go above 15 percent. If we see oil at $300 per barrel, we will be looking out over the smoldering ruins of the world's economy. Source
Posted by Martin at June 23, 2008 9:53 PM
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