Economic Risks of Oil Dependence

Published March 2, 2006

Our economy is inextricably tied to the world oil market. Each of the three world oil price shocks in the last three decades—in 1973, 1979, and 1991—was followed by a recession in the United States. As long as we consume large quantities of oil, the American economy is held hostage to the ups and downs of the world oil market.

To make matters worse, we will soon face fierce competition from China and India for a limited supply of petroleum. The Department of Energy predicts that oil consumption by developing Asian nations will double in the next twenty-five years, jumping from 15 to 32 million barrels per day.

Leaving aside various predictions that world oil fields have passed their “peak” production and are rapidly in decline, it’s clear that dramatic increases in global oil demand and diminishing/uncertain supplies will lead to periodic shortages and price spikes at best, and worldwide economic instability, at worst.

More to consider:
Detroit and Hybrids
High oil and gas prices could have a devastating impact on the American auto industry, according to a recent congressional briefing. 14 U.S. factories are at risk if Detroit can't produce more fuel-efficient vehicles, such as hybrids.

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