The impact of $80/oil

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Posted by Justin Long ⋅ September 30, 2007 ⋅

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UPDATE, 5/2008: It is hilarious reading about $80/barrel oil now, just a few short months later, when oil has already reached $130/barrel. The likelihood of it hitting $200/barrel is not insignificant. I wonder where we’ll be in 6 months from now? –Ed.

Oil trends are important to monitor. The rising cost of oil leads to a rising costs affecting everything from travel to the daily cost of living. It also affects wealth in the Middle East, and in turn helps to fuel the spread of Islam.

The Worldwatch Institute reported the price of oil has reached its highest level in 25 years, and is now approaching the inflation-adjusted record set in 1981. This increase is occurring despite predictions that the oil prices would fall with approaching winter. Short-term explanations do not account for the 200-percent rise in oil prices over the past four years: the Institute contends the global economy is “feeling the ceiling” of oil production.

Globally, the demand for oil is increasing at roughly 2% p.a. Some experts insist we will find new ways of accessing oil. However, production is currently falling in 33 of the 48 largest oil producing countries. Production in the UK, Indonesia, Mexico, Norway and the US is flat or declining. Analysts with Goldman Sachs predict oil prices could reach $95/barrel by the end of 2008, due to supply shortages. The US National Petroleum Council predicted a looming shortfall in world oil supplies. We’ve heard this before, of course—but this time there is quite a lot of evidence that the price of oil may not fall any time soon.

The recent democracy protests in Myanmar are the result in part of this trend, and offer a picture of what is to come. On August 15th, the government of Myanmar imposed a 100% increase in fuel prices at state-owned gas stations. At the same time, the price of cans of compressed natural gas increased over 500%. No warnings or reasons were given. Costs costs for transportation, food and other essentials skyrocketed, too high for the poor.

On August 19th pro-democracy activists led a public protest against the price rises, demonstrating through the streets of Yangon. About 500 joined. It was led by activists from the 88 Generation Students group: former student leaders from the 1988 pro-democracy uprising, many of whom were jailed and tortured after those protests were crushed. About 13 leaders of the August 19th protests were jailed. On August 22, some 300 protestors joined a second protest march, which was broken up by the USDA (a pro-government group) with police asistance.

On August 25th, the government warned it would crack down on any protests, which were reported to be spreading to other cities, including the towns of Bago and Mogok. Another protest was broken up on August 28th. This day, Buddhist monks joined the protests in Sittwe.

On September 3rd, protestors began a 160-kilometer march from Labutta to Yangon. Two days later, police and soldiers fired warning shots to break up a protest by Buddhist monks in Pakokku. On the 9th, the government accused the opposition of using the fuel price increases to instigate riots and unrest, and warned further protests could lead to the outlawing of the opposition party NLD.

On September 18th, Buddhist monks held a string of protests and said they would begin boycotting alms from members of the military government. On September 22nd, activist Aung San Suu Kyi, under house arrest for 12 of the past 18 years, greeted aobut 2,000 people gathered at her home. On September 24th, Buddhist monks called on sympathizers to join their marches: between 50,000 and 100,000 protestors surged into the streets of Yangon. On that day the government imposed a nighttime curfew on Yangon and Mandalay.

At that point, the government shut the Internet connections down. Pictures and news of the protests had been distributed at great risk by Burmese bloggers and journalists, but much of this was cut off. On the 26th, troops deployed around six of the big monasteries in Yangon. Nine were killed, including a Japanese video journalist, whensecurity forces used automatic weapons on protestors. Tens of thousands continued to protest.

As oil prices rise worldwide, it puts many governments in a tight position. Some have subsidized fuel prices in order to keep the daily costs of living low enough for their poor, but as prices rise they will find it difficult or impossible to continue to do so. Indonesia has already experienced this: when they cut their fuel subsidies, prices shot up so high riots were threatened, and the government chose to back down and restore some of the subsidies. Myanmar has chosen instead to try a clamp down. But in the age of the Internet and globalization, such clampdowns will be increasingly difficult—or at least increasingly visible.

The time in which we transition from oil to something else could take anywhere from 25 to 50 to 100 years. The longer it goes, the harder it will be for many poor. How can we be a blessing in the midst of this?