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Oil highs and the demise of the suburbs

The oil price, in dollar terms, has hit a record high. The main driving force behind the rise seems to be supply shortages. It’s inevitable that shortages will continue to worsen, as oil is a commodity in short supply, and the remaining supplies are more and more difficult to extract. Rapidly increasing demand from China in particular means that the crunch has hit us quicker than expected. China is expected to have 120 million cars on the road by 2020 (up from 20 million today). Lack of American will to reduce oil consumption (Americans are still consuming a ridiculous portion of the world’s oil, living up to their gas-guzzling reputation with 230 million cars, and more than their fair share of SUV’s, while both Kerry and Bush were strongly against increased taxes or any other measures to reduce consumption. Expect more invasions/coups in oil-rich countries). Opec are producing as much as they can and can no longer do much to reduce the price of oil.

Goldman Sachs predicted that oil would reach $105 to the barrel. In dollar terms, the price would double, and that blow to the world economy would likely mean a retreat from emerging markets, and a resultant weakening of the R/$ exchange rate towards the R13/$1 it reached in 2001, doubling the Rand price of dollars, effectively meaning a fourfold increase in the Rand oil price for South Africans.

This would be a heavy blow. The transport and airline industries would take serious strain. Investment in renewables and nuclear (I talked about the high road of renewables versus the low road of nuclear in my post George Monbiot and the looming energy crisis) is lagging, so the effects cannot be other than a recession. This recession would hit developing, oil-dependent countries hardest. New technologies would first appear in developed countries, meaning that there would be shortages in developing countries, and of course exchange rate fluctuations would again hit developing countries hardest.

I spend about R200 a week on petrol, already quite a substantial portion of my income. Luckily I’ll soon be doing much less commuting, but if the amount had to increase to R800 a week, my incentive for travelling to town every day would be a lot less! Township residents, already far from centres of economic activity, would be worst affected as transport costs rise.

Some positive effects would ensue. Local goods would be more attractive as they gain a greater relative competitive advantage. A Cuban-style model (where urban farming boomed after Soviet funds dried up) would ensue, while American-style suburbs would become less sustainable as it becomes less feasible to commute long distances, and ship goods in from afar. The eventual decrease in oil consumption can only have good effects on the planet’s health. I concur with Greenpeace’s estimate that if all the world’s oil reserves were to be burnt the planet would be doomed. We have to move a lot quicker than simply following economic pressure, and the Kyoto Protocol is completely insufficient, although a good start (which makes the US and Australian rejection of it all the more criminal).

I’m still, as always, optimistic, and see the preparation underway already. Urban, organic, farming is growing dramatically, while telecommuting is growing in popularity. Technology is allowing us to maintain the benefits of global communication without many of the harmful effects of actually travelling.

But there’s still a long way to go.

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3 replies on “Oil highs and the demise of the suburbs”

That’s a really great analysis, Ian. PLease keep writing them, I can really use a ‘stringer’ in SA to keep me on top of things now that I am over in the UK and don’t have time to sift through and analyse news. You will be my primary SA news source!

Actually, I thought that was rather an old comment. I read the M&G piece, and it pissed me off, because although there is truth in it it is simply not acceptable to say the same thing about black males, and that’s unfair. How is it OK to say what you like about white males but not about anyone else? But I am sure this whole issue came up before, it seems familiar, and I don’t really care: it’s designed to provoke, it doesn’t really lead anywhere, and I am not going to be drawn to either side. It’s a generalisation: a meaningless argument.
One of the weird things about England is that difference: no one is apolgetic about being white, the way you are ‘supposed’ to be in SA, but there’s a horribly superficial liberal consensus.

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