The world economy must find a way to function while burning less oil.
That may sound like a call to action, but in the short run it’s simply a statement of fact. Until the Iran war began, 20 percent of the world’s oil supply was shipped through the Strait of Hormuz. Barring a deal with Iran, which is nowhere in sight, or military action that eliminates almost all threats to shipping — which is very hard to achieve in this modern age of drone warfare — there is simply going to be less oil available for months, maybe even years, to come.
And in the longer run, we’re now having an object lesson in the strategic risks of depending so much on oil — risks that add to the already compelling environmental case for moving away from fossil fuels in general.
But how hard will it be to reduce our dependence on the black stuff? Can the world economy prosper while burning much less oil than it has in the past?
The answer depends on the time frame. Even with oil costing $100 a barrel — indeed, even if it goes to $150 — it will be very hard to reduce overall oil consumption quickly.
That’s because in the short run – which means several years — the only way to consume less oil is for people to change their behavior, mainly by driving less. So to induce a major decline in oil consumption prices would need to go high enough that people turn to carpooling, working from home, taking the bus where that’s an available option (which for most Americans it isn’t.) Or, in the worst-case scenario, oil prices will have to reduce consumers’ purchasing power so much that the economy falls into a recession, which would among other things reduce the demand for oil.
In the longer run, by contrast — defined as a period long enough to replace a large fraction of vehicles on the road — there is much greater potential for consuming much less oil, with small or zero adverse effects on economic growth and purchasing power. This was true even before the technological innovations that have made electric vehicles (EVs) competitive with internal consumption vehicles (ICEs). Fuel-efficient vehicles provide most of the benefits of gas-guzzling SUVs, and consumers may not realize how much money they save. And now that EVs are competitive, drastic reductions in gas consumption are possible with minimal disruption.
Finally, if we make different decisions about how we live and work, the world could easily thrive while burning only a fraction as much oil as it does now.
Beyond the paywall I will address the following issues:
1. Why we consume so much oil, and how that logic is changing
2. The demand for oil in the short run, and the crucial question of price elasticity
3. How demand can adjust once there’s time to replace vehicles
4. Oil demand and how we live: The long-run possibilities
