The Bad News at the Pump
The $100-plus Barrel of Oil and What It Means

On Monday March 3, the price of crude oil reached $103.95 per barrel on the New York Mercantile Exchange, surpassing the record set nearly 30 years ago during another moment of chaos in the Middle East. Will that new mark prove distinctive in the annals of world history or will it be forgotten as energy prices drop, just as they did following their April 1980 peak? When oil costs are plotted over time, the 1980 oil crisis -- prompted by Ayatollah Khomeini's Iranian revolution -- stands out as a sharp spike on that price curve. Both before and after that moment, however, oil supplies proved largely sufficient to meet rising global demand, in part because the Saudis and other major producers were capable of compensating for declining Iranian production. They simply increased their output substantially, dumping a surplus of oil onto the global market. Aided by the development of new fields in Alaska and the North Sea, prices dropped precipitously and stayed low through the 1990s (except for a brief spike following the Iraqi invasion of Kuwait in August 1990). Nothing similar is likely to happen now. For the present surge in prices -- crude oil costs have risen by 74% over the past year -- no such easy solution is in sight. To begin with, we face not a sudden spike, but the results of a steady, relentless climb that began in 2002 and shows no signs of abating; nor can this rise be attributed to a single, chaos-causing factor in the energy business or in global politics. It is instead the product of multiple factors endemic to energy production and characteristic of the current era. There is no prospect of their vanishing any time soon. Three factors, in particular, are responsible for the current surge: intensifying competition for oil between the older industrial powers and rising economic dynamos like China and India; the inability of the global energy industry to expand supplies to keep pace with growing demand; and intensifying instability in the major oil-producing areas.

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5 Myths About Breaking Our Foreign Oil Habit

With oil prices still flirting with $100 a barrel, everyone is talking about the need for "energy independence." Late last year, President Bush signed the Energy Independence and Security Act of 2007; Sen. John McCain has declared, "We need energy independence"; and Sen. Barack Obama has called for "serious leadership to get us started down the path of energy independence." This may all be good politics. But the idea that the United States, the world's single largest energy consumer, can be independent of the $5 trillion-per-year energy business -- the world's single biggest industry -- is ludicrous on its face. The push for energy independence is based on a series of false premises . Here are a few of the most pernicious ones. 1 Energy independence will reduce or eliminate terrorism. In a speech last year, former CIA director R. James Woolsey Jr. had some advice for American motorists: "The next time you pull into a gas station to fill your car with gas, bend down a little and take a glance in the side-door mirror. . . . What you will see is a contributor to terrorism against the United States." Woolsey is known as a conservative, but plenty of liberals have also eagerly adopted the mantra that America's foreign oil purchases are funding terrorism. But the hype doesn't match reality. Remember, the two largest suppliers of crude to the U.S. market are Canada and Mexico -- neither exactly known as a belligerent terrorist haven. Moreover, terrorism is an ancient tactic that predates the oil era. It does not depend on petrodollars. And even small amounts of money can underwrite spectacular plots; as the 9/11 Commission Report noted, "The 9/11 plotters eventually spent somewhere between $400,000 and $500,000 to plan and conduct their attack." G.I. Wilson, a retired Marine Corps colonel who has fought in Iraq and written extensively on terrorism and asymmetric warfare, calls the conflation of oil and terrorism a "contrivance." Support for terrorism "doesn't come from oil," he says. "It comes from drugs, crime, human trafficking and the weapons trade."

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