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The Inevitable Future: Peak Oil and Socialism

By Reggie Abaca, Published: April 21st, 2009 3:13 AM CDT

The current economic malaise was triggered by falling home prices and aggressive lending practices, they say.

The other part of the story – where oil (OIL, USO, USL) prices shot up to $150 a barrel - has been largely ignored, for now. 

But it happened.

Worldwide peak oil is not a theory.  It has already occurred and the 2008 oil price shock represented the first real test of what can happen.  The after effect of the sudden oil price rise was so devastating that it temporarily crippled the entire world and was the primary trigger to what would become a financial meltdown.

When oil shot up to $150 a barrel, producers had an amazing incentive to significantly increase production.  But before they had the opportunity, the world economies fell, and oil consumption dropped.  Crude oil prices fell to as low as one fifth of their peak price.

It may take some time for oil consumption to completely recover, but when it does, look out.  This time around, financial companies were battered to a point where over three quarters of the industry’s value vanished.  So what will be the next victim?

Today’s observer might say that the process of a changing world as a result of expensive energy is already well under way.  When the middle class gets squeezed, they naturally turn to government officials who make the most promises.  The United States is now led by a popular liberal president along with liberal representatives in the nation’s House and Senate.  It is no accident and conservative critics may not be exaggerating when complaining about a move toward socialism.

Somebody needs to tell conservatives, however, that the move toward socialism is now inevitable.  Just imagine today’s oil prices doubling or tripling on top of our current economic problems.  The result would be rapid inflation and a people who are only more desperate, naturally turning to government officials who make the most promises.  Those who make the most promises are those who will naturally ignore long term economic ramifications.

The result is not just a move toward socialism.  It is a loss of opportunity for those who are not already wealthy.  It is a different kind of America.

Texas energy specialist Matthew Simmons, has predicted that Saudi Arabia, which is by far the number one oil supplier to the world, is already experiencing peak oil production while Saudi officials mask the truth.  Recent 2008 production numbers have suggested that Russia, the number two oil producer in the world, has just hit its peak.  The question remains, how long will it take for the world’s oil consumption appetite to rise back up, putting pressure on oil suppliers to keep their promises that they can meet demand?  Unlike the early 1980’s, when consumption did not pick up for several years, China, India and emerging markets have been experiencing a robust and renewed industrial revolution of their own, fueled by population growth and improved technology.  You can see the result in the air quality of those respective nations.

If a dramatic rising price of oil is indeed inevitable, as evidence suggests, the greatest victim may be the United States middle class, who for so long have enjoyed a special status in the world.  The cruel reality is that the precious American dream will likely really just be a dream sometime in the future.  If oil were at $150 barrel today in this environment, it would already be a dream.

But let’s hope those Saudi monarchs are honest thoughtful individuals who are telling us the truth about their oil production capabilities.

But don’t get your hopes up.

Related: OIL, USO, USL

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