Tensions are rising in the Middle East in the aftermath of Iran’s ballistic missile testing. Israel has been undertaking major military exercises in the past months, which some have seen as a lead-up to an air strike on Iran’s nuclear facilities (nevermind that they can’t actually produce nuclear weapons). The concern is that when Iran receives its new Russian anti-aircraft weapons systems, it could neuter the effectiveness of a pre-emptive Israeli strike. As with all arms races, this has created a frighteningly real impetus for action in the short term.
Of late, Iran has renewed its threats to respond to any military action by closing the Strait of Hormuz, a shipping lane through which 20% of the world’s oil supply travels. While this is nothing new - Iran’s geography and influence on the oil trade is its main strategic advantage in a conflict between it and the West - it still represents a serious threat to the oil trade.
So should war break out with Iran, and the Strait of Hormuz closes, where does that leave us? An instant spike in the price of oil up to $200+ per barrel would be a huge hit to the economy, driving explosive inflation in the price of food, consumer goods, and transportation; the perfect trigger for a recession.
The price of diesel fuel has already nearly tripled in the past year - while this has been painful for the trucking industry, it’s also shown up in the price of nearly everything we buy, as a result. While the price of jet fuel has ‘only’ doubled in that same period, airlines are folding at a rate of one every week - on some routes, the price of fuel now represents more than half of the total ticket price. Oil prices (and the present misplaced emphasis on food-crop biofuels to compensate) have played a huge role in the global food crisis, and a further spike in prices could have devastating effects on the developing world.
But maybe its exactly what we need. I’m loathe to put a price on lives, but dramatic short-term pain may be the only way to bring the severity of the global energy crisis (and climate change, by association), into clear focus. Despite complaints from SUV drivers, the average person in the U.S. has largely been able to tread water with $150/bbl oil. At $200/bbl, the prognosis changes. The entire world, developed and developing, would need to take notice, and a short-term crunch today could alleviate catastrophic suffering in the distant future, at a time when we may no longer be able to address it.
This situation is not without precedent. The 1973 oil crisis spurred rapid and widespread societal change in America. Government policies were instituted to promote conservation (some of which were silly and ineffective, such as daylight saving time), including, for the first time, vehicle fuel economy standards. Buyers abandoned large gas-guzzlers in droves, embracing tiny, poorly-built (but efficient!) imports, heralding the slow decline of the American auto industry. Brazil began its highly effective sugar-cane ethanol program, which today supplies 40% of the fuel for Brazil’s transportation fleet. Alternative energy in the form of solar and wind power experienced a nascent boom, despite immature technology.
In today’s world, I expect the impacts would be at least as stark. Automotive efficiency is already under serious scrutiny by industry and buyers alike. At current prices, commuters from the GTA into Toronto spend nearly $10,000/year on gasoline alone. If prices increase another 30-50%, the suburbs will die, or they will collapse in on themselves, becoming self-sustaining communities, rather than mere dormitories. Commercial electric vehicles, mass-transportation systems, and thoughtful urban planning will become imperative. Already this summer, gas prices have led to a surge in urban commuters who walk, ride, or take the TTC, rather than drive. On the utility front, at $200/bbl, the economic incentive for pursuing renewable electricity and storage becomes impossible to ignore. High gas prices would be more than enough to sustain the solar industry over the hump in 2010, when a huge increase in supply is expected to depress growth (from its current triple-digits down to a more modest 20%, perhaps). And while it is wishful thinking from a veggie, the price of food may even nudge people into changing their eating habits - while the government heavily subsidizes meat prices, the costs stand to grow exponentially with the price of grain. Even now, chicken is supplanting beef due to its healthful image - with the useful byproduct of a significantly reduced environmental footprint.
From my bubble of privilege, I say bring on the blockades, Iran. Let’s shake things up.
