[Graeme]

Third oil shock

$this->bbcode_second_pass_quote('', 'T')he two oil shocks of the 1970's had a seismic impact on the world's industrial constellation, financial markets, geopolitical alignments and competition for energy resources.

Stagflation in the US, the worst economic recession since the Great Depression, a monetary policy revaluation under the Volcker Fed, twenty per cent inflation and Treasury bill rates, stock market crashes, international banking failures and the sovereign bankruptcy of Latin America, the collapse of British trade unions and American airlines, the emergence of Saudi Arabia as the power broker of the Arab world, the Reagan-Thatcher free market ideologies can all be traced to the 1979 oil shock when Ayatollah Khomeini overthrew the Shah's regime in Iran.

We are now living in one of history's defining moments, the third oil shock when North Sea Brent and West Texas crude trade at $110. The third oil shock will change the world as we know it, create new realities of geopolitical power and influence.


If Clinton or Obama win the White House in November, $110 crude oil can easily persuade America to embrace the new ideas on climate change and energy, as happened with Japan, Taiwan and South Korea after the economic insecurities of the second oil shocks.

Washington will use regulations and the tax code to force consumers, utilities and businesses to embrace fuel efficient protocols, meaning the golden age of the gas guzzler SUV and the light truck is living on borrowed time.

Detroit's future may rise in hydrogen cars and diesel trucks. Of course, every oil shock contains the seeds of its own destruction. The US consumer is no less than 20 per cent of the global GDP and the buyer of the last resort for Asia's exports that define the demand curve for oil and gas. As in 1974 and 1982, economic recession in the West could well mean yet another historic collapse in crude oil prices.

[Last_Laff]

It's hard to see it comin'...