Effects of 2000s energy crisis
Encyclopedia
There is debate over what the effects of the 2000s energy crisis will be over the long term. Some speculate that an oil-price spike could create a recession comparable to those that followed the 1973 and 1979 energy crises
or a potentially worse situation such as a global oil crash. Increased petroleum prices are however reflected in a vast number of products derived from petroleum, as well as those transported using petroleum fuels.
Political scientist George Friedman
has postulated that if high prices for oil and food persist, they will define the fourth distinct geopolitical regime since the end of World War II
, the previous three being the Cold War
, the 1989-2001 period in which economic globalization
was primary, and the post-9/11 war on terror
.
On average, oil price has increased approximately 400% for these areas. As a result of the dramatic price increase there have been global protests.
Rising transport costs may start to reverse globalization
, because distance will cost more and more money. As oil prices keep rising, transport costs could cancel out lower wage
advantages, such as in East Asia
.
contains many other petroleum products as well.
Despite the rapid increase in the price of oil, neither the stock market
s nor the growth of the global economy were noticeably affected until supply declined rapidly starting in November 2007. Arguably, inflation
has increased; in the United States
, inflation averaged 3.3% in 2005–2006, as compared to an average of 2.5% in the preceding 10-year period. As a result, during this period the Federal Reserve has consistently increased interest rates
to curb inflation.
Exactly how much trade, soaring transport costs divert from China (or for that matter anywhere else) depend ultimately on how important those costs are in total costs. Goods that have a high value to freight ratio carry implicitly small transport costs, while goods with low value to freight ratios typically carry significant moving costs. A high percentage of Chinese exports to the U.S. fall in the latter category. Furniture
, apparel, footwear
, metal manufacturing, and industrial machinery—all typical Chinese exports, incur relatively high transport costs.
Soaring costs are squeezing gas station owners too.
In 2008, a report by Cambridge Energy Research Associates
stated that 2007 had been the year of peak gasoline usage in the United States, and that record energy levels would cause an "enduring shift" in energy consumption practices. According to the report, in April gas consumption had been lower than a year before for the sixth straight month, suggesting 2008 would be the first year U.S. gasoline usage declined in 17 years. The total miles driven in the U.S. began declining in 2006.
required 2.4 barrels (381.6 l) of oil in 1973 when adjusted for inflation, while this number had fallen to 1.15 barrels (182.8 l) by 2001.
For calendar 1981, United States oil consumption was 5861058000 bbl (0.93183375725811 km³) and GDP was $5,291.7 billion (chain-volume 2000 dollars), a ratio of $902.86/bbl.
In 2005, consumption was 7592789000 bbl (1.2 km³) and GDP was $10,989.5 billion, a ratio of $1,447.36/bbl.
In 2006, consumption was 7550908000 bbl (1.2 km³) and GDP was $11,294.8 billion, a ratio of $1,495.82/bbl.
In 2007, consumption was 7548338000 bbl (1.2 km³) and GDP was $11,523.9 billion, a ratio of $1,526.68/bbl.
Many of the energy intensive industrial and manufacturing activities present in the 1970s U.S. moved out of the country during a period of outsourcing. Manufacturing as a portion of U.S. GDP has declined considerably since 1973. While the United States no longer makes as many goods and therefore does not expend as much energy to do so higher energy prices are still impacting the cost to manufacture these goods overseas. The increased cost impacts the U.S. GDP via the trade deficit. The size of this impact is difficult to estimate though the total energy/GDP effect should be commensurate with the 1970s value compensated by any efficiency gains from the outsourcing itself and the increased transportation costs.
like XLE (an overall energy sector fund) and OIH (an oil service industry fund) did well during the period, with XLE's price increasing from $26 (2004-01-01) to $54 (2006-03-02), and OIH's price increasing from $60 (2004-01-01) to $143 (2006-03-02).
The value of the stock in companies such as Apache and Conoco-Phillips rose sharply during this period. These prices increased more rapidly toward the end of August, particularly after Hurricane Katrina
.
Wal-Mart
shares continued their decrease in value that began with the increase in the oil prices. Over two years, stock in Wal-Mart dropped in value by 25% from $60 per share to under $45 per share. Earlier in August, Wal-Mart announced that higher than expected oil prices cut into the corporation's profits for the 2nd quarter of 2005. Since oil prices after the end of the 2nd quarter continued to rise, 3rd quarter profits from Wal-Mart are expected to be small. Because Wal-Mart's distribution system relies on the customer to drive to a large discount big-box store
, increases in the price of fuel might discourage some customers from making the trip as often. Wal-Mart, like all retailers, will also face higher shipping costs to get goods from the factory to the stores. This will likely cause inflationary pressures
. Nevertheless, Wal-Mart's sales actually increased as a result as disposable income
decreased due to the increased price of gasoline because of its economic role as an inferior good
.
The escalating price of oil in USD has been softer in Euro terms, as the US dollar lost approximately 30% of its value during the 2007-2009 period.
As a consequence, there is no 2000s energy crisis in Europe. The table below shows the absence of impact of the price extremum over consumption.
had been experiencing oil shortages on an ongoing basis prior to Hurricane Katrina. Some countries are increasing production of biofuels to offset the higher costs of oil.
In July 2008, Malaysia experienced protests against high fuel prices.
In Indonesia
, fuel subsidies grew to encompass "almost one third of the state budget".
On July 15, 2008, Japan
ese fishermen for the first time began a protest strike over the high cost of boat fuel (which had tripled over a three year period). The high fuel costs have been compounded by higher domestic meat consumption, lower priced foreign competitors, and the cumulative effects of overfishing. During the strike around virtually the entire Japanese fishing fleet of 200,000 boats sat idle. This follows strikes by truck and taxi drivers, as well as other fishermen, in Asia, Europe and the U.S. Between 2006 and 2008, the number of fishermen in Japan dropped by as much as 20% and the Japanese Ministry of Agriculture, Forestry and Fisheries projects this percentage to grow.
has looked more deeply at the effect of oil prices in the developing countries.
An analysis finds that in South Africa a 125 percent increase in the price of crude oil and refined petroleum reduces employment and GDP by approximately 2 percent, and reduces household consumption by approximately 7 percent, affecting mainly the poor.
, including Zimbabwe
, Eritrea
and Tanzania
. High oil prices have created an oil supply instability, per barrel price instability or both. There are reports that this has led to fuel rationing being enacted in some cases. Many countries in Sub-Saharan Africa lack the foreign exchange reserves to purchase enough oil products at increasingly higher prices. These nations have little choice but to limit imports and/or ration their existing supplies.
's president, Hugo Chávez
, came under increasing scrutiny as he began selling heating oil at lower-than-market prices to poor U.S. consumers and to island nations in the Caribbean such as Cuba. Chavez came up with a programme known as PetroCaribe
to sell oil and gas cheaply to states in the region.
, notably in Saudi Arabia
and Dubai
, experienced a boom, roughly 100% index increase in the Saudi stock market
. However, this boom was followed by a market crash. A number of planned projects to stir development, such as King Abdullah Economic City
, have been proposed due to $29.3 billion surplus. On May 1, 2006 Saudi Arabia lowered prices on all hydrocarbon fuels for local consumption; 95 octane
gasoline costs .606 USD/gallon (fixed price).
An EIA
report stated that OPEC
member nations were projected to earn a net amount of $1.251 trillion in 2008 from their oil exports, due to the record crude prices.
s and full-size vehicles in the United States, Canada and other countries where fuel taxes have historically been low. This trend began reversing in 2008 due to rising prices of fuel along with an increasing perception that future fuel prices will be at least as high. At the same time, appraisal and depreciation
rates for SUVs, trucks, and vans have increased 30% and current SUV, truck, and van owners who cannot liquidate their gas-guzzler
s because of low resale values are donating their vehicles for tax credits; this trend occurred during the 1973 oil crisis
where musclecar
s and luxury cars faced the same predicament.
The September 2005 sales data for all the vehicle vendors indicated SUV sales dropped while small cars sales increased compared with 2004 sales. There is also an ever increasing market for hybrid vehicles (e.g., Toyota Prius
and Honda Civic Hybrid
) and diesel engine
vehicles (e.g., Volkswagen
TDI
and Mercedes-Benz E320 CDI) since they are more fuel efficient; since the 1973 energy crisis, the front-wheel drive
passenger car has replaced rear-wheel drive as the preferred layout for energy efficient cars. There is increasing demand of "crossover SUV
s" (i.e., SUVs based on unibody platforms) which are marginally lighter and therefore more fuel efficient than SUVs built on body-on-frame
chassis.
The Union Pacific Railroad has had to address with its rising fuel bill, which has reached the point of becoming its single biggest operating expense. Airlines and oveseas shipping companies are also struggling to contain costs as their energy expense soar.
Anecdotal evidence suggested that in mid-2008, rising fuel prices motivated an increasing number of drivers to adopt fuel economy maximizing behaviors.
In July 2008, millions of India
n truck drivers joined a series of protests in Asia
and Europe
after crude oil's record run forced governments and fuel retailers to cut subsidies and raise prices.
theorists such as David Goodstein
, Richard Heinberg
, and others, had for years predicted sharp declines in air travel following the peaking of world oil production and its subsequent decline, air travel
enjoyed robust growth around much of the world spurred by low jet fuel
costs starting in the mid-1980s
. For example, air travel in the United States grew five times faster than population in the decades after 1978, with 769 million passengers boarding U.S. airline flights in 2007. However, the run-up in oil prices after 2003 began eroding airline profits, and the further doubling of oil prices from May 2007 to May 2008 began to have a substantial impact on airline operations, forcing airlines to reduce flight schedules, and pushing weaker carriers into merger or bankruptcy. During the first half of 2008, at least twenty-five airlines world-wide entered bankruptcy or were forced to cease operations.
April 2008 began with four small airlines (Aloha Airlines
, Champion Air
, ATA Airlines
and Skybus Airlines
) ceasing operations in a period of a week. A fifth airline, Oasis Hong Kong Airlines
ceased operations on April 9, 2008. A sixth airline, Frontier Airlines
filed for bankruptcy on April 11, 2008 to protect itself from its credit card processing company which was withholding airline ticket revenues. Frontier continues to operate under Chapter 11 and is working to get a new agreement with said company. Eos Airlines
, a small specialty carrier with high costs, ceased operations on April 27, 2008. An eighth airline Nationwide Airlines
ceased operations on April 29, 2008, due to the "impossibility" of profitably operating the Boeing 737-200 with oil prices of over $133 a barrel. The 737-200 is a 30 year old aircraft that is 30% less fuel efficient than new production 737's. On May 9, 2008, a ninth airline, EuroManx
announced that it was ceasing all operations, citing rising fuel prices and reduced passenger numbers as the reasons.
A 5% U.S. domestic capacity cut (since raised to around 15%) may be expanded to all airlines to save on fuel by eliminating older aircraft from their fleets similar to the exchange that took place in the late 1970s and early 1980s. Although a slightly larger cut happened in the aftermath of 9/11 (20%), this is the first time since the 1970s that airline service has been cut to save on fuel for the United States. Other airlines such as Ryanair
and Scandinavian Airlines System
have also cut capacity.
Increasing fuel prices also caused "deep downturns" in air travel within China and India, in favor of a return to ground travel.
that effectively makes shipping costs more vulnerable to swings in fuel costs. Container ships can be unloaded much faster than break cargos so they spend much more time at sea than in ports.
Another factor is speed. The shift to container ships has increased the importance of ship speed. Over the past two decades, container ships were built to go faster than bulk ships and since container ships were steadily gaining share, the world’s fleet speed picked up. But greater speed requires greater energy, as it does in all other modes of transport. In global shipping, the increase in ship speed over the last fifteen years has doubled fuel consumption
per unit of freight. Accordingly, in 2008 some shipping companies responded to higher fuel costs by slowing down their ships, while companies such as SkySails
began prototyping large towing kites
to harness wind power
, partly offsetting some engine power for propulsion.
The cost of shipping a standard 40 feet (12.2 m) container
from East Asia to the U.S. Eastern Seaboard
has already tripled since 2000 and will double again as oil prices head towards $200 per barrel. At 2008 oil prices, every 10% increase in trip distance translates into a 4.5% increase in transport costs.
Including inland
costs, shipping a standard 40 feet (12.2 m) container from Shanghai to the U.S. Eastern Seaboard now costs $8,000. In 2000, when oil prices were $20 per barrel, it cost only $3,000 to ship the same container. Trans-oceanic transport costs also exploded during the two historic OPEC oil price shock. The cost
of shipping a standard cargo load overseas almost tripled, just as it did over the past few years.
s, fertilizers, and increased mechanization
(the so-called Green Revolution
). During this time, the world population
has more than doubled. Between 1950 and 1984, as the Green Revolution transformed agriculture
around the globe, world grain production increased by 250%.
By late 2007, increased farming for use in biofuel
s, world oil prices at nearly $100 a barrel and growing consumer demand in China
and India
pushed up the price of grain
. Food riots occurred in many countries across the world in 2007 and 2008. In December 2007, 37 countries faced food crises, and 20 had imposed some sort of food
-price controls. Geologist Dale Allen Pfeiffer
claims that the coming decades could see spiraling food prices and massive starvation
on a global level such as never experienced before
.
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...
or a potentially worse situation such as a global oil crash. Increased petroleum prices are however reflected in a vast number of products derived from petroleum, as well as those transported using petroleum fuels.
Political scientist George Friedman
George Friedman
George Friedman is an American political scientist and author. He is the founder, chief intelligence officer, financial overseer, and CEO of the private intelligence corporation Stratfor...
has postulated that if high prices for oil and food persist, they will define the fourth distinct geopolitical regime since the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, the previous three being the Cold War
Cold War
The Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World—primarily the Soviet Union and its satellite states and allies—and the powers of the Western world, primarily the United States...
, the 1989-2001 period in which economic globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
was primary, and the post-9/11 war on terror
War on Terror
The War on Terror is a term commonly applied to an international military campaign led by the United States and the United Kingdom with the support of other North Atlantic Treaty Organisation as well as non-NATO countries...
.
Inflation and recession
The perceived increase in oil price differs internationally according to currency market fluctuations and purchasing power of currencies. For example, excluding changes in relative purchasing power of various currencies, from 2002-01-01 to 2008-01-01:- In US$, oil price rose from $20.37 to nearly $100, about 4.91 times more expensive;
- In the same period, the Taiwanese dollar gained value over the U.S. dollar to make oil in Taiwan 4.53 times more expensive;
- In the same period, the Japanese Yen¥¥ is a currency sign used by the Japanese yen and the Chinese yuan currencies. The symbol resembles a Latin letter Y with a double stroke. The base unit of both currencies shared the same Chinese character pronounced yuán in Mandarin Chinese and en in Standard Japanese...
gained value over the U.S. dollar to make oil in JapanJapanJapan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
4.10 times more expensive; - In the same period, the Euro gained value over the U.S. dollar to make oil in the EurozoneEurozoneThe eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...
2.94 times more expensive.
On average, oil price has increased approximately 400% for these areas. As a result of the dramatic price increase there have been global protests.
Rising transport costs may start to reverse globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
, because distance will cost more and more money. As oil prices keep rising, transport costs could cancel out lower wage
Wage
A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
advantages, such as in East Asia
East Asia
East Asia or Eastern Asia is a subregion of Asia that can be defined in either geographical or cultural terms...
.
United States
It is easiest to gauge the effects of oil prices in the United States, where comparison of oil prices to average income are simplified. One of the most closely watched measures is the price of gas, but the average United States consumer's basket of goodsMarket basket
The term market basket or commodity bundle refers to a fixed list of items used specifically to track the progress of inflation in an economy or specific market....
contains many other petroleum products as well.
Despite the rapid increase in the price of oil, neither the stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
s nor the growth of the global economy were noticeably affected until supply declined rapidly starting in November 2007. Arguably, inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
has increased; in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, inflation averaged 3.3% in 2005–2006, as compared to an average of 2.5% in the preceding 10-year period. As a result, during this period the Federal Reserve has consistently increased interest rates
Federal funds rate
In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...
to curb inflation.
Exactly how much trade, soaring transport costs divert from China (or for that matter anywhere else) depend ultimately on how important those costs are in total costs. Goods that have a high value to freight ratio carry implicitly small transport costs, while goods with low value to freight ratios typically carry significant moving costs. A high percentage of Chinese exports to the U.S. fall in the latter category. Furniture
Furniture
Furniture is the mass noun for the movable objects intended to support various human activities such as seating and sleeping in beds, to hold objects at a convenient height for work using horizontal surfaces above the ground, or to store things...
, apparel, footwear
Footwear
Footwear consists of garments worn on the feet, for fashion, protection against the environment, and adornment. Being barefoot is commonly associated with poverty, but some cultures chose not to wear footwear at least in some situations....
, metal manufacturing, and industrial machinery—all typical Chinese exports, incur relatively high transport costs.
Soaring costs are squeezing gas station owners too.
In 2008, a report by Cambridge Energy Research Associates
Cambridge Energy Research Associates
Cambridge Energy Research Associates is a consulting company in the United States that specializes in advising governments and private companies on energy markets, geopolitics, industry trends, and strategy...
stated that 2007 had been the year of peak gasoline usage in the United States, and that record energy levels would cause an "enduring shift" in energy consumption practices. According to the report, in April gas consumption had been lower than a year before for the sixth straight month, suggesting 2008 would be the first year U.S. gasoline usage declined in 17 years. The total miles driven in the U.S. began declining in 2006.
United States and GDP
In the United States, for instance, each 1000 dollars in GDPGross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
required 2.4 barrels (381.6 l) of oil in 1973 when adjusted for inflation, while this number had fallen to 1.15 barrels (182.8 l) by 2001.
For calendar 1981, United States oil consumption was 5861058000 bbl (0.93183375725811 km³) and GDP was $5,291.7 billion (chain-volume 2000 dollars), a ratio of $902.86/bbl.
In 2005, consumption was 7592789000 bbl (1.2 km³) and GDP was $10,989.5 billion, a ratio of $1,447.36/bbl.
In 2006, consumption was 7550908000 bbl (1.2 km³) and GDP was $11,294.8 billion, a ratio of $1,495.82/bbl.
In 2007, consumption was 7548338000 bbl (1.2 km³) and GDP was $11,523.9 billion, a ratio of $1,526.68/bbl.
Many of the energy intensive industrial and manufacturing activities present in the 1970s U.S. moved out of the country during a period of outsourcing. Manufacturing as a portion of U.S. GDP has declined considerably since 1973. While the United States no longer makes as many goods and therefore does not expend as much energy to do so higher energy prices are still impacting the cost to manufacture these goods overseas. The increased cost impacts the U.S. GDP via the trade deficit. The size of this impact is difficult to estimate though the total energy/GDP effect should be commensurate with the 1970s value compensated by any efficiency gains from the outsourcing itself and the increased transportation costs.
United States stock market
The increase in oil prices over two years was mirrored by an increase in stock values in the energy sector. Energy ETFsExchange-traded fund
An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE...
like XLE (an overall energy sector fund) and OIH (an oil service industry fund) did well during the period, with XLE's price increasing from $26 (2004-01-01) to $54 (2006-03-02), and OIH's price increasing from $60 (2004-01-01) to $143 (2006-03-02).
The value of the stock in companies such as Apache and Conoco-Phillips rose sharply during this period. These prices increased more rapidly toward the end of August, particularly after Hurricane Katrina
Hurricane Katrina
Hurricane Katrina of the 2005 Atlantic hurricane season was a powerful Atlantic hurricane. It is the costliest natural disaster, as well as one of the five deadliest hurricanes, in the history of the United States. Among recorded Atlantic hurricanes, it was the sixth strongest overall...
.
Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
shares continued their decrease in value that began with the increase in the oil prices. Over two years, stock in Wal-Mart dropped in value by 25% from $60 per share to under $45 per share. Earlier in August, Wal-Mart announced that higher than expected oil prices cut into the corporation's profits for the 2nd quarter of 2005. Since oil prices after the end of the 2nd quarter continued to rise, 3rd quarter profits from Wal-Mart are expected to be small. Because Wal-Mart's distribution system relies on the customer to drive to a large discount big-box store
Big-box store
A big-box store is a physically large retail establishment, usually part of a chain. The term sometimes also refers, by extension, to the company that operates the store...
, increases in the price of fuel might discourage some customers from making the trip as often. Wal-Mart, like all retailers, will also face higher shipping costs to get goods from the factory to the stores. This will likely cause inflationary pressures
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
. Nevertheless, Wal-Mart's sales actually increased as a result as disposable income
Disposable income
Disposable income is total personal income minus personal current taxes. In national accounts definitions, personal income, minus personal current taxes equals disposable personal income...
decreased due to the increased price of gasoline because of its economic role as an inferior good
Inferior good
In consumer theory, an inferior good is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. Normal goods are those for which consumers' demand increases when their income increases....
.
Europe
In the European Union, the prices of transport fuels are made up of the price of the refined product, plus a substantial tax element, which can vary between roughly 2/3 and 3/4 of the total price ; in the UK, nearly 70% of petrol is made up of fuel duty and VAT, a doubling of the oil price would add perhaps 30% to the cost of fuel at the pump. Populations have lifestyles that are already well adapted to fuel prices that would appear very high to consumers in the USA (where the tax fraction is less than 20%). This long lasting tax system makes European demand largely independent of the crude oil price, at least over short periods of a few years.The escalating price of oil in USD has been softer in Euro terms, as the US dollar lost approximately 30% of its value during the 2007-2009 period.
As a consequence, there is no 2000s energy crisis in Europe. The table below shows the absence of impact of the price extremum over consumption.
| 2004 | 2005 | 2006 | 2007 | 2008 |
|---|---|---|---|---|
20,092 |
20,285 |
20,463 |
20,031 |
20,158 |
Asia Pacific region
The Pacific rimPacific Rim
The Pacific Rim refers to places around the edge of the Pacific Ocean. The term "Pacific Basin" includes the Pacific Rim and islands in the Pacific Ocean...
had been experiencing oil shortages on an ongoing basis prior to Hurricane Katrina. Some countries are increasing production of biofuels to offset the higher costs of oil.
In July 2008, Malaysia experienced protests against high fuel prices.
In Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
, fuel subsidies grew to encompass "almost one third of the state budget".
On July 15, 2008, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
ese fishermen for the first time began a protest strike over the high cost of boat fuel (which had tripled over a three year period). The high fuel costs have been compounded by higher domestic meat consumption, lower priced foreign competitors, and the cumulative effects of overfishing. During the strike around virtually the entire Japanese fishing fleet of 200,000 boats sat idle. This follows strikes by truck and taxi drivers, as well as other fishermen, in Asia, Europe and the U.S. Between 2006 and 2008, the number of fishermen in Japan dropped by as much as 20% and the Japanese Ministry of Agriculture, Forestry and Fisheries projects this percentage to grow.
Developing countries
High oil prices are likely to first affect less affluent countries, particularly the developing world, with less discretionary income. There are fewer vehicles per capita, and oil is often used for electricity generation, as well as private transport. The World BankWorld Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
has looked more deeply at the effect of oil prices in the developing countries.
An analysis finds that in South Africa a 125 percent increase in the price of crude oil and refined petroleum reduces employment and GDP by approximately 2 percent, and reduces household consumption by approximately 7 percent, affecting mainly the poor.
Sub-Saharan Africa
High oil prices are hurting many countries in AfricaAfrica
Africa is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...
, including Zimbabwe
Zimbabwe
Zimbabwe is a landlocked country located in the southern part of the African continent, between the Zambezi and Limpopo rivers. It is bordered by South Africa to the south, Botswana to the southwest, Zambia and a tip of Namibia to the northwest and Mozambique to the east. Zimbabwe has three...
, Eritrea
Eritrea
Eritrea , officially the State of Eritrea, is a country in the Horn of Africa. Eritrea derives it's name from the Greek word Erethria, meaning 'red land'. The capital is Asmara. It is bordered by Sudan in the west, Ethiopia in the south, and Djibouti in the southeast...
and Tanzania
Tanzania
The United Republic of Tanzania is a country in East Africa bordered by Kenya and Uganda to the north, Rwanda, Burundi, and the Democratic Republic of the Congo to the west, and Zambia, Malawi, and Mozambique to the south. The country's eastern borders lie on the Indian Ocean.Tanzania is a state...
. High oil prices have created an oil supply instability, per barrel price instability or both. There are reports that this has led to fuel rationing being enacted in some cases. Many countries in Sub-Saharan Africa lack the foreign exchange reserves to purchase enough oil products at increasingly higher prices. These nations have little choice but to limit imports and/or ration their existing supplies.
Latin America and Caribbean
VenezuelaVenezuela
Venezuela , officially called the Bolivarian Republic of Venezuela , is a tropical country on the northern coast of South America. It borders Colombia to the west, Guyana to the east, and Brazil to the south...
's president, Hugo Chávez
Hugo Chávez
Hugo Rafael Chávez Frías is the 56th and current President of Venezuela, having held that position since 1999. He was formerly the leader of the Fifth Republic Movement political party from its foundation in 1997 until 2007, when he became the leader of the United Socialist Party of Venezuela...
, came under increasing scrutiny as he began selling heating oil at lower-than-market prices to poor U.S. consumers and to island nations in the Caribbean such as Cuba. Chavez came up with a programme known as PetroCaribe
Petrocaribe
Petrocaribe S. A. is a Caribbean oil alliance with Venezuela to purchase oil on conditions of preferential payment. The alliance was launched in June 2005. The payment system allows for a few nations to buy oil on market value but only a certain amount is needed up front; the remainder can be paid...
to sell oil and gas cheaply to states in the region.
Persian Gulf States and Eurasian Arab-Islamic regions
Some stock markets in the GCCCooperation Council for the Arab States of the Gulf
The Cooperation Council for the Arab States of the Gulf , also known as the Gulf Cooperation Council , is a political and economic union of the Arab states bordering the Persian Gulf and constituting the Arabian Peninsula, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates...
, notably in Saudi Arabia
Saudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
and Dubai
Dubai
Dubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...
, experienced a boom, roughly 100% index increase in the Saudi stock market
Tadawul
Saudi Stock Exchange or Tadawul is the only stock exchange in Saudi Arabia. It is supervised by the Capital Market Authority. The Tadawul All-Share Index reached its highest point at 20,634.86 on 25 February 2006. It lists 144 publicly traded companies...
. However, this boom was followed by a market crash. A number of planned projects to stir development, such as King Abdullah Economic City
King Abdullah Economic City
King Abdullah Economic City is a megaproject announced in 2005 by Abdullah bin Abdulaziz Al Saud, the king of Saudi Arabia.-Overview:...
, have been proposed due to $29.3 billion surplus. On May 1, 2006 Saudi Arabia lowered prices on all hydrocarbon fuels for local consumption; 95 octane
Octane rating
Octane rating or octane number is a standard measure of the anti-knock properties of a motor or aviation fuel. The higher the octane number, the more compression the fuel can withstand before detonating...
gasoline costs .606 USD/gallon (fixed price).
An EIA
EIA
EIA may refer to:*Edmonton International Airport*EIA Multiport, a North American NTSC SCART connector*Electronic Industries Alliance , a US trade organization...
report stated that OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
member nations were projected to earn a net amount of $1.251 trillion in 2008 from their oil exports, due to the record crude prices.
Ground transport
Prior to the runup in fuel prices, many motorists opted for larger, less fuel-efficient sport utility vehicleSport utility vehicle
A sport utility vehicle is a generic marketing term for a vehicle similar to a station wagon, but built on a light-truck chassis. It is usually equipped with four-wheel drive for on- or off-road ability, and with some pretension or ability to be used as an off-road vehicle. Not all four-wheel...
s and full-size vehicles in the United States, Canada and other countries where fuel taxes have historically been low. This trend began reversing in 2008 due to rising prices of fuel along with an increasing perception that future fuel prices will be at least as high. At the same time, appraisal and depreciation
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....
rates for SUVs, trucks, and vans have increased 30% and current SUV, truck, and van owners who cannot liquidate their gas-guzzler
Gas-guzzler
Gas-guzzler commonly refers to a vehicle that consumes fuel inefficiently.The term originally came into use in the US when congress established Gas Guzzler Tax provisions in the Energy Tax Act of 1978 to discourage the production and purchase of fuel-inefficient vehicles...
s because of low resale values are donating their vehicles for tax credits; this trend occurred during the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
where musclecar
MuscleCar
MuscleCar is a television program whose hosts demonstrate how to rebuild muscle cars while sharing information about these cars and their history...
s and luxury cars faced the same predicament.
The September 2005 sales data for all the vehicle vendors indicated SUV sales dropped while small cars sales increased compared with 2004 sales. There is also an ever increasing market for hybrid vehicles (e.g., Toyota Prius
Toyota Prius
The Toyota Prius is a full hybrid electric mid-size hatchback, formerly a compact sedan developed and manufactured by the Toyota Motor Corporation...
and Honda Civic Hybrid
Honda Civic Hybrid
The Civic hybrid, based on the seventh generation Civic, was first introduced to the Japanese market in December 2001. Honda claimed it was the most fuel efficient 5-passenger gasoline-powered production vehicle in the world at the time. It was introduced to the U.S. in spring 2002 as a 2003 model...
) and diesel engine
Diesel engine
A diesel engine is an internal combustion engine that uses the heat of compression to initiate ignition to burn the fuel, which is injected into the combustion chamber...
vehicles (e.g., Volkswagen
Volkswagen Group
Volkswagen Group is a German multinational automobile manufacturing group. , Volkswagen was ranked as the world’s third largest motor vehicle manufacturer and Europe's largest....
TDI
Turbocharged Direct Injection
TDI or Turbocharged Direct Injection is a design of turbodiesel engines, which feature turbocharging and cylinder-direct fuel injection, developed and produced by Volkswagen Group. These TDI engines are widely used in all mainstream Volkswagen Group marques of passenger cars and light commercial...
and Mercedes-Benz E320 CDI) since they are more fuel efficient; since the 1973 energy crisis, the front-wheel drive
Front-wheel drive
Front-wheel drive is a form of engine/transmission layout used in motor vehicles, where the engine drives the front wheels only. Most modern front-wheel drive vehicles feature a transverse engine, rather than the conventional longitudinal engine arrangement generally found in rear-wheel drive and...
passenger car has replaced rear-wheel drive as the preferred layout for energy efficient cars. There is increasing demand of "crossover SUV
Crossover SUV
A crossover SUV is a vehicle built on a car platform and combining, in highly variable degrees, features of a sport utility vehicle with features from a passenger vehicle, especially those of a station wagon or hatchback.Using the unibody construction typical of passenger vehicles, the crossover...
s" (i.e., SUVs based on unibody platforms) which are marginally lighter and therefore more fuel efficient than SUVs built on body-on-frame
Body-on-frame
Body-on-frame is an automobile construction method. Mounting a separate body to a rigid frame that supports the drivetrain was the original method of building automobiles, and its use continues to this day. The original frames were made of wood , but steel ladder frames became common in the 1930s...
chassis.
The Union Pacific Railroad has had to address with its rising fuel bill, which has reached the point of becoming its single biggest operating expense. Airlines and oveseas shipping companies are also struggling to contain costs as their energy expense soar.
Anecdotal evidence suggested that in mid-2008, rising fuel prices motivated an increasing number of drivers to adopt fuel economy maximizing behaviors.
In July 2008, millions of India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
n truck drivers joined a series of protests in Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
and Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
after crude oil's record run forced governments and fuel retailers to cut subsidies and raise prices.
Air travel
Although Peak oilPeak oil
Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. This concept is based on the observed production rates of individual oil wells, projected reserves and the combined production rate of a field...
theorists such as David Goodstein
David Goodstein
David L. Goodstein is a U.S. physicist and educator. From 1988 to 2007 he served as Vice-provost of the California Institute of Technology , where he is also a professor of physics and applied physics, as well as the Frank J...
, Richard Heinberg
Richard Heinberg
Richard Heinberg is an American journalist and educator who has written extensively on energy, economic, and ecological issues, including oil depletion. He is the author of ten books...
, and others, had for years predicted sharp declines in air travel following the peaking of world oil production and its subsequent decline, air travel
Air travel
Air travel is a form of travel in vehicles such as airplanes, helicopters, hot air balloons, blimps, gliders, hang gliding, parachuting or anything else that can sustain flight.-Domestic and international flights:...
enjoyed robust growth around much of the world spurred by low jet fuel
Jet fuel
Jet fuel is a type of aviation fuel designed for use in aircraft powered by gas-turbine engines. It is clear to straw-colored in appearance. The most commonly used fuels for commercial aviation are Jet A and Jet A-1 which are produced to a standardized international specification...
costs starting in the mid-1980s
1980s oil glut
The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s Energy Crisis. The world price of oil, which had peaked in 1980 at over US$35 per barrel , fell in 1986 from $27 to below $10...
. For example, air travel in the United States grew five times faster than population in the decades after 1978, with 769 million passengers boarding U.S. airline flights in 2007. However, the run-up in oil prices after 2003 began eroding airline profits, and the further doubling of oil prices from May 2007 to May 2008 began to have a substantial impact on airline operations, forcing airlines to reduce flight schedules, and pushing weaker carriers into merger or bankruptcy. During the first half of 2008, at least twenty-five airlines world-wide entered bankruptcy or were forced to cease operations.
April 2008 began with four small airlines (Aloha Airlines
Aloha Airlines
Aloha Airlines was an American airline headquartered in Honolulu CDP, City and County of Honolulu, Hawaii, operating from a hub at Honolulu International Airport...
, Champion Air
Champion Air
Champion Air was an airline based in Bloomington, Minnesota, USA. It operated general charter services to sports teams, vacation wholesalers and government agencies. It also offered limited scheduled service...
, ATA Airlines
ATA Airlines
ATA Airlines, Inc., formerly known as American Trans Air, was an American low-cost scheduled service and charter airline based in Indianapolis, Indiana. ATA operated scheduled passenger flights throughout the US mainland and Hawaii, as well as military and commercial charter flights around the world...
and Skybus Airlines
Skybus Airlines
Skybus Airlines Inc. was a privately held airline based in Columbus, Ohio, United States. It operated as an ultra-low-cost carrier modeled after the European airline Ryanair, and aimed to be the least expensive airline in the United States...
) ceasing operations in a period of a week. A fifth airline, Oasis Hong Kong Airlines
Oasis Hong Kong Airlines
Oasis Hong Kong Airlines Limited is a now-defunct long-haul low-cost airline that was based in Hong Kong. It operated scheduled services to London Gatwick Airport and Vancouver International Airport from its hub, Hong Kong International Airport....
ceased operations on April 9, 2008. A sixth airline, Frontier Airlines
Frontier Airlines
Frontier Airlines, Inc., is an American airline headquartered in Indianapolis, Indiana, United States. The carrier, which is a subsidiary and operating brand of Republic Airways Holdings, operates flights to 83 destinations throughout the United States, Mexico, and Costa Rica and maintains hubs at...
filed for bankruptcy on April 11, 2008 to protect itself from its credit card processing company which was withholding airline ticket revenues. Frontier continues to operate under Chapter 11 and is working to get a new agreement with said company. Eos Airlines
Eos Airlines
Eos Airlines, Inc. was an American all-business class airline headquartered in Purchase, New York, with its flights from John F. Kennedy International Airport, New York...
, a small specialty carrier with high costs, ceased operations on April 27, 2008. An eighth airline Nationwide Airlines
Nationwide Airlines
Nationwide Airlines was an airline based in Lanseria, South Africa. It operated scheduled domestic and international services. Its main base was OR Tambo International Airport, Johannesburg....
ceased operations on April 29, 2008, due to the "impossibility" of profitably operating the Boeing 737-200 with oil prices of over $133 a barrel. The 737-200 is a 30 year old aircraft that is 30% less fuel efficient than new production 737's. On May 9, 2008, a ninth airline, EuroManx
EuroManx
EuroManx was an airline based at Ronaldsway, Isle of Man, which operated scheduled domestic passenger services as well as business charters. Its main base was Isle of Man Airport...
announced that it was ceasing all operations, citing rising fuel prices and reduced passenger numbers as the reasons.
A 5% U.S. domestic capacity cut (since raised to around 15%) may be expanded to all airlines to save on fuel by eliminating older aircraft from their fleets similar to the exchange that took place in the late 1970s and early 1980s. Although a slightly larger cut happened in the aftermath of 9/11 (20%), this is the first time since the 1970s that airline service has been cut to save on fuel for the United States. Other airlines such as Ryanair
Ryanair
Ryanair is an Irish low-cost airline. Its head office is at Dublin Airport and its primary operational bases at Dublin Airport and London Stansted Airport....
and Scandinavian Airlines System
Scandinavian Airlines System
Scandinavian Airlines or SAS, previously Scandinavian Airlines System, is the flag carrier of Denmark, Norway and Sweden, and the largest airline in Scandinavia....
have also cut capacity.
Increasing fuel prices also caused "deep downturns" in air travel within China and India, in favor of a return to ground travel.
Shipping
Recent changes in transportation have led to increased sensitivity to higher energy prices. Most notable of these changes is the massive trend towards containerizationContainerization
Containerization is a system of freight transport based on a range of steel intermodal containers...
that effectively makes shipping costs more vulnerable to swings in fuel costs. Container ships can be unloaded much faster than break cargos so they spend much more time at sea than in ports.
Another factor is speed. The shift to container ships has increased the importance of ship speed. Over the past two decades, container ships were built to go faster than bulk ships and since container ships were steadily gaining share, the world’s fleet speed picked up. But greater speed requires greater energy, as it does in all other modes of transport. In global shipping, the increase in ship speed over the last fifteen years has doubled fuel consumption
per unit of freight. Accordingly, in 2008 some shipping companies responded to higher fuel costs by slowing down their ships, while companies such as SkySails
SkySails
SkySails GmbH & Co. KG is a Hamburg-based company that sells equipment to propel cargo ships, large yachts and fishing vessels by the use of wind energy. The company was founded in 2001 by engineers Stephan Wrage and Thomas Meyer...
began prototyping large towing kites
Power kite
A power kite or traction kite is a large kite designed to provide significant pull to the user.They come in three main forms: foils, leading edge inflatables and supported leading edge. There are also rigid-framed kites and soft single skin kites. There are several different control systems used...
to harness wind power
Wind power
Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....
, partly offsetting some engine power for propulsion.
The cost of shipping a standard 40 feet (12.2 m) container
Containerization
Containerization is a system of freight transport based on a range of steel intermodal containers...
from East Asia to the U.S. Eastern Seaboard
East Coast of the United States
The East Coast of the United States, also known as the Eastern Seaboard, refers to the easternmost coastal states in the United States, which touch the Atlantic Ocean and stretch up to Canada. The term includes the U.S...
has already tripled since 2000 and will double again as oil prices head towards $200 per barrel. At 2008 oil prices, every 10% increase in trip distance translates into a 4.5% increase in transport costs.
Including inland
Inland
Inland is an area of land away from the coast or shore line. It usually refers to the interior part of a country or region.Inland may refer to:* Inland Fräkne Hundred, a hundred of Bohuslän in Sweden...
costs, shipping a standard 40 feet (12.2 m) container from Shanghai to the U.S. Eastern Seaboard now costs $8,000. In 2000, when oil prices were $20 per barrel, it cost only $3,000 to ship the same container. Trans-oceanic transport costs also exploded during the two historic OPEC oil price shock. The cost
of shipping a standard cargo load overseas almost tripled, just as it did over the past few years.
Food security
Since the 1940s, agriculture has dramatically increased its productivity, due largely to the use of petrochemical derived pesticidePesticide
Pesticides are substances or mixture of substances intended for preventing, destroying, repelling or mitigating any pest.A pesticide may be a chemical unicycle, biological agent , antimicrobial, disinfectant or device used against any pest...
s, fertilizers, and increased mechanization
Mechanization
Mechanization or mechanisation is providing human operators with machinery that assists them with the muscular requirements of work or displaces muscular work. In some fields, mechanization includes the use of hand tools...
(the so-called Green Revolution
Green Revolution
Green Revolution refers to a series of research, development, and technology transfer initiatives, occurring between the 1940s and the late 1970s, that increased agriculture production around the world, beginning most markedly in the late 1960s....
). During this time, the world population
World population
The world population is the total number of living humans on the planet Earth. As of today, it is estimated to be billion by the United States Census Bureau...
has more than doubled. Between 1950 and 1984, as the Green Revolution transformed agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
around the globe, world grain production increased by 250%.
By late 2007, increased farming for use in biofuel
Biofuel
Biofuel is a type of fuel whose energy is derived from biological carbon fixation. Biofuels include fuels derived from biomass conversion, as well as solid biomass, liquid fuels and various biogases...
s, world oil prices at nearly $100 a barrel and growing consumer demand in China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
and India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
pushed up the price of grain
GRAIN
GRAIN is a small international non-profit organisation that works to support small farmers and social movements in their struggles for community-controlled and biodiversity-based food systems. Our support takes the form of independent research and analysis, networking at local, regional and...
. Food riots occurred in many countries across the world in 2007 and 2008. In December 2007, 37 countries faced food crises, and 20 had imposed some sort of food
Food
Food is any substance consumed to provide nutritional support for the body. It is usually of plant or animal origin, and contains essential nutrients, such as carbohydrates, fats, proteins, vitamins, or minerals...
-price controls. Geologist Dale Allen Pfeiffer
Dale Allen Pfeiffer
Dale Allen Pfeiffer is a geologist and writer from Michigan, U.S. who has investigated and written about energy depletion and potential future resource wars. He has also written about class war, sustainability, direct action and the environment. He is also an anarchist activist and a member of the...
claims that the coming decades could see spiraling food prices and massive starvation
Starvation
Starvation is a severe deficiency in caloric energy, nutrient and vitamin intake. It is the most extreme form of malnutrition. In humans, prolonged starvation can cause permanent organ damage and eventually, death...
on a global level such as never experienced before
Olduvai theory
The Olduvai theory states that industrial civilization will have a lifetime of less than or equal to 100 years . The theory provides a quantitative basis of the transient-pulse theory of modern civilization...
.
See also
- 2003 to 2008 world oil market chronology2003 to 2008 world oil market chronologyFrom the mid-1980s to September 2003, the inflation adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. Then, during 2004, the price rose above $40, and then $50. A series of events led the price to exceed $60 by August 11, 2005, and then briefly exceed $75 in the...
- Energy lawEnergy lawEnergy laws govern the use and taxation of energy, both renewable and non-renewable. These laws are the primary authorities related to energy...
- Automotive industry crisis