What Happens if Oil Goes to $400 a Barrel?

Public Domain. U. S. National Archives

Current events could lead to another oil embargo by Saudi Arabia, and it could be 1973 all over again.

In early August, the Canadian foreign minister tweeted in support of two human rights activists imprisoned in Saudi Arabia. Within days the Saudis recalled their ambassador, expelled the Canadian ambassador and banned trade between the two countries. Reuters noted that "the outsized reaction to the tweet underscores how the kingdom is taking a much harsher stance against what it perceives as Western interference in its internal affairs."

Now there is significant new interest in Saudi internal affairs, and the President of the USA says, "We’re going to get to the bottom of it and there will be severe punishment." The Saudis, meanwhile, are promising another outsized reaction. Headlines this morning include Don’t rule out $400 oil if the U.S. sanctions Saudi Arabia. A senior Saudi editor wrote:

It would lead to Saudi Arabia's failure to commit to producing 7.5 million barrels. If the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure.

According to the Guardian, the official reaction to threats by the USA is Steadfast and Glorious.

The kingdom affirms its total rejection of any threats and attempts to undermine it, whether through economic sanctions, political pressure or repeating false accusations. The kingdom also affirms that if it is [targeted by] any action, it will respond with greater action.”

Remember 1973?

nobody is driving

U. S. National Archives/ empty roads as people stopped driving/Public Domain TreeHuggers of a certain age will remember what happened the last time oil prices quadrupled because of disagreements over the Middle East. There were gasoline shortages across the country; when you could get gas, the price was very high and miles driven plummeted. Sales of big American cars collapsed and everybody wanted fuel-efficient Japanese models, almost bankrupting the car industry. The economy sputtered as there was "stagflation"- significant inflation due to higher costs, causing stagnation in economic growth.

No one can ever embargo the sun or interrupt its delivery to us.

-President Jimmy Carter

Saskatchewan Conservation House

© Saskatchewan Conservation House

But there were also positive outcomes. It started a boom in energy efficient and solar design. The inspirations for the Passivhaus movement were developed in this period.

turn out the lights

U. S. National Archives/Public Domain

In the transportation sector, speed limits were dropped to 55 miles per hour, saving millions of gallons of gas and saving thousands of lives. The fuel efficiency of cars increased dramatically. It even started a bike boom.

Jimmy carter in front of solar panels

The White House/Public Domain

It wouldn't last. Jimmy Carter noted in his speech inaugurating the rooftop solar panels he put on the White House:

A generation from now, this solar heater can either be a curiosity, a museum piece, an example of a road not taken, or it can be a small part of one of the greatest and most exciting adventures ever undertaken by the American people; harnessing the power of the Sun to enrich our lives as we move away from our crippling dependence on foreign oil.

Looking back, we know that Ronald Reagan rolled back efficiency measures, removed the solar panels, and got rid of the hated 55 MPH speed limit.

fuel shortage

U. S. National Archives/Public Domain

The USA is no longer as dependent on Saudi Arabian oil as it was in the 70s thanks to fracking and generally friendly Canadians with their oil sands. The President doesn't want to lose sales of military equipment and probably won't impose any sanctions of significance.

But even the smell of this is causing serious upset in world markets and the price of oil is already rising. It is likely that people will start getting nervous about buying that big SUV, and more people will be looking at electric cars. There is a chill in the air; this changes things.

winnebago for sale

U. S. National Archives/Public Domain