A friend of mine with many decades in the finance business has a saying: "If this goes on much longer they will end up with all the money in the world". He uses it to point out various cases of extreme pricing and market power, which sometimes (but not always) evolves to become a bubble. Prima facie evidence suggests that in today's environment his saying readily applies to crude oil.
Look at the chart below: at $120 per barrel, revenue from exporting crude oil and its products comes to over $1.85 trillion per year. The Middle East alone gets nearly a trillion and the former Soviet Union $300 billion - and that's before including natural gas.
At current oil prices, this is by far the largest capital recycling and concentration pump in the entire history of the world. A dollar may not buy as much as it used to, but a trillion every year still buys plenty, even after liberal handouts pour epater les bourgeois. Very plenty, in fact: US and European banks, other resource companies like ore and coal miners, shipping and port operators, electricity, water and telecom providers and a host of other essential businesses. That's where all the SWF and private oil money is going, most commonly channelled through secretive private equity funds.
Obviously, the oil exporters are furiously planning for their post-Peak Oil future: sensibly, they don't want to ride camels again. And if this goes on much longer, by the time their oil wells start to decline they will own everything that matters and will be sitting - literally - atop all the money in the world.
What are the rest of us - Americans and Europeans alike - doing to plan our post-peak future? Next to nothing, is the painful answer. If a few EU nations like Germany, Denmark and Spain are attempting to face the alternative energy challenge, the US as the largest oil consumer is making a momentous mistake by its absence. Stubborn reliance on imported oil is rapidly impoverishing the nation. That sucking sound we all hear in our pockets is money vacuumed out by the oil exporters, only to come back as foreign equity ownership of everything.
The American administration is repeating the glaring mistake of the French and German armies' Russian invasion, albeit in a different context. Like arrogant generals whose prior easy victories made them blind to current harsh realities, Bush & Co. are throwing away America's post-Cold War advantage into the maws of the giant oil recirculation pump. Like Napoleon and Hitler before him, George W. Bush has failed to provide the nation with the protection of a sensible energy plan.
To make matters worse, the current monetary policy is designed solely as a bail out of a bankrupt shadow financial system. By preventing the liquidation of excessive debt that could result in a more efficient and sustainable economy, it keeps the dollar/oil recirculating pump going at full speed.
America is in the unfortunate position of being at the hands of a dogmatic incompetent and a near-sighted academic. For different reasons, both blithely believe they are right beyond doubt. One because he converses with God and the other because he trusts his econometric models with religious fervor.
But if they are wrong the price of failure is the end of Empire. That's too much to bet, by a long shot.
...and here's a perfect example of the lunacy perpetrated in order to keep the game going at all costs. CPI inflation was just reported as 0.2% for April, largely because the BLS said that gasoline prices DROPPED 2.0%. Yes, that's what the BLS said: gasoline prices dropped two percent in April. Now, we all know that prices climbed 9.5% during April, from $3.29/gal to $3.60. This was reported by no less than the government's own Energy Information Administration.
Ahhh, but such hard facts are immaterial to the BLS. You see, according to their seasonal CPI model, gasoline prices should have increased even more in April so a sharp rise ends up reported as a decline. I would try this argument next time I show up at the pump for a fill up, but I have a hunch I'd end up with a black eye.