Oil prices are going through their very own era of The Roaring Nineties, leaving many rubbing their eyes in astonishment. Prices have now handily surpassed even the inflation adjusted high reached in 1981-82. But unlike previous oil "shocks", the present rise is not a result of unilateral supply restrictions (e.g. embargoes), but spiking consumption. I have produced a couple of charts to show where the demand is coming from (click to enlarge).
The first chart is regional; Asia - Pacific (red line) is obviously the biggest contributor to the increase, but North America (i.e. mostly the US - orange line) is increasing rapidly, too (SUVs+suburbia). Africa and the Middle East (black line at the bottom) are becoming a factor, mostly due to escalating consumption in Saudi Arabia and Iran.
Europe and Eurasia looks like a virtuous player, but the real reason is the collapse in the former Soviet Union after 1990 cutting its consumption in half. With resurgent oil/gas wealth in Russia and the Caspian region, consumption there is rising again even as the EU tries to go green and reduce demand.
Within the Asia - Pacific region the big player is China, with South Korea and India being significant elements as well. Japan's consumption is slowly trending down due to demographic reasons (ageing population).
Furthermore, these charts are a window to geopolitical events past, present and future. For example, Iran and Iraq possess the second and third largest oil reserves in the world (after Saudi Arabia); if really modern survey and extraction technology were to be applied there, they will be able to significantly ramp up production. Iraq may already be "spoken for" by the US, but Iran is still up for grabs and that's why the US, Russia and China are in a three-way struggle over it.
In the short term, we cannot expect a significant drop in oil prices unless the bipolar US-China economy cools off. Longer term, the only way to free humanity from its hydrocarbon shackles is to realize that, ultimately, the only sustainable energy resource is the Sun (plus some nuclear) and to ease off the "high growth" pedal. Of course that's easy to say, but nearly impossible to accomplish given human nature. And it is easier still for us in the West to preach sustainability; we have already reached a high living standard. I believe it will be impossible to ask 2.3 billion Chinese and Indians to stop their quest for a better life.
What will happen? There are two choices: one is laid out by Michael Klare in Resource Wars (see the sidebar). I am afraid that with the Iraq war and the Iran threats we are teetering dangerously close to taking that road. The other choice is for us in the West to embark on the "moral equivalent of war" and go through the economic upheavals necessary to transform ourselves into lower intensity societies.
I am hopeful that we will choose the second path. I have to be: today is my birthday!
Have a lovely weekend.