Peak Oil: The Issue No One's Mentioning (But Should Be)

One of the assumptions made by both parties in the current election campaign is that the economy will keep growing at the present rate for the foreseeable future. Howard's and Rudd's recently announced $30 odd billion tax giveaways are only deliverable if that assumption holds true.

There are a couple of economic 'elephants in the room' that both side of politics don't want to mention. One is the sub-prime lending crisis in the US, the other is Peak Oil. The former may knock a few years growth off the economy. The later issue, Peak Oil and its effect on the oil price and world economy, is much more serious.

If the more dire predictions regarding Peak Oil eventuate, the predictions of tax giveaways will be laughable in the face of declining government receipts.

Peak oil and climate change are related, but the effects of peaking oil supplies will be felt much earlier and have a sharper negative effect on the economy. Predictions of just when the peak will occur vary. Some say it's here now, others say it won't happen for a couple of decades. Even if the optimists are correct, it's not that far away.

Over the last week the oil price hit $90 barrel*. Admittedly, that spike was a reaction to the threat of Turkey taking military action in Iraq. However, the steady rise of the oil price from around $30 three years ago to $85 this month is simply due to demand outstripping supply. $100 / barrel is not out of the question in the near future.

Since the 1960s, two barrels of oil have been consumed for every barrel found. China and India are competing for oil on the world market for supplies, and they have some way to go before they approach anything like the per capita energy we consume.

(Click to enlarge)

Australia has been insulated from the current rising energy prices due to the rising value of the Oz dollar. Not every country is so lucky, and eventually increasing energy prices will start to negatively effect the world economy.

Perhaps the imminent $100 per barrel oil price will put the issue on the public agenda. Until then, Rudd, Howard and Co will happily perpetrate the myth that resources and rising living standards last forever.

*$92 as of today.