In an earlier post I wrote that the idea that we'll ever "run out" of oil is absurd, because market forces will act to increase exploration and technological innovation as oil prices rise. Commenter TRE pointed out that we don't have to completely run out of oil before our economy will feel the effects of rising prices, and he's right of course, but I think his claim that we're already facing oil depletion is unsound. Alan Greenspan agrees.
Oil prices closed at a record of $54.76 per barrel on Thursday as fears about supplies in the United States and the possibility of attacks on oil pipelines in the Middle East have sent the price of crude to record levels in dollar terms.As the first paragraph notes, the main reasons oil prices are high today are fear and war, not depletion -- and even these prices aren't that high by historical standards.
Greenspan, however, noted that even with the recent jump, energy prices are still only three-fifths as high, after adjusting for inflation, as they were at their all-time peak in February 1981.
He said this means that the overall impact on the economy should be lower this time around than during that period, when the oil shocks of the 1970s and early 1980s were enough to push the country into a series of recessions.
Greenspan said that so far this year, the rise in energy has probably trimmed the gross domestic product (search) by about 0.75 percentage point, far less than the shocks of two decades ago.
However, Greenspan warned, "Obviously, the risk of more serious negative consequences would intensify if oil prices were to move materially higher."
However, he said he believed that existing technology and improvements spurred by the increase in prices should be sufficient to "ensure the needed supplies (of energy) for a very long while."