Notes on the Looming Global Energy Crisis

In January, the average price for a barrel of oil was just above $50, by mid-October it had reached almost $90 a barrel, an impressive 70 percent increase without there having been a major catastrophe or war in between. International investment houses, such as Merrill Lynch and Citigroup, predict the average price will reach well above $90 a barrel and do not attribute any radical change as a catalyst for this upward trend.

Moreover, according to Matthew Simons, president of the investment bank Simmons and Co., prices might triple (reaching above $200) if certain events take place in parallel, for instance, a Turkish invasion of Kurdish-dominated Northern Iraq, a war in Iran, and widespread terrorist attacks, to bring the economy to a phenomenal recession.


One of the reasons for the oil price increase is the deteriorating value of the dollar, which is priced at 1.43 euros. Since petroleum, and most other commodities for that matter, are priced with the dollar, as long as its value decreases the price of oil will increase. Furthermore, the International Monetary Fund in its mid-term report describes the dynamism of the worldwide economic environment, which is characterized by significant growth in the economies of Asia, especially China’s and India’s. Due to the sheer size of their domestic markets and energy consuming industries, there is a strong demand for oil that naturally assists the rise in the energy price index.

Goldman Sachs, in its third quarter report, notes a decrease in global oil reserves, for the first time over the past 10 years. According to analysts, the price of oil might exceed $93 this winter if it is colder that the previous year or $77 if as hot as last year. The winter of 2006-2007 was most probably the hottest in recent history; 850,000 barrels of oil per day less than usual were consumed.

WorldPress.org