During the past year there was an ever quickening drumbeat of dire news as it related to oil. Predictions of $250.00 barrel super spikes, declining global supplies and the potential for energy wars were making headline news. In the United States high fuel prices at the pump became a leading campaign issue and a very real driver of inflationary fears. That inflationary pressure forced the emerging giants of India and China to tighten monetary policy which constrained economic growth. But while oil will indeed come to an end as the primary energy supply for the global economic engine it will most likely go out with a whimper and not a roar!

Global dependence on oil is a reality and demand is increasing at a steady rate primarily driven by the economic growth of India and China. Concurrently new sources of oil are becoming increasingly difficult and expensive to find. As such using the basic principle of supply and demand we should conclude that oil prices will continue to increase without any end in sight, correct? Not exactly! First and foremost there is the issue of supply. During the next 2-3 years Iraq’s oil production will increase by 3.5 million barrels per day adding 4% to the global supply. Additionally production from new fields in Angola and Brazil are expected o add an additional 1-2 million barrels per day during the same timeframe. But additional production is not what will cause oil to quietly go into the night! The end of oil may have in fact begun on Tuesday, November 4^th 2008 with the election of President elect Barack Obama. That election among other things heralds the rapid development of the most comprehensive energy policy that the world has ever seen.

Currently the United States consumes 19.6 million barrels of oil per day which is equal to 25% of the world’s total consumption. The United States also produces one fourth of the world’s carbon emissions more than any other country on earth!  Equally alarming is the fact that the United States imports 10.2 million barrels of oil per day creating an unsustainable and strategically precarious dependence on foreign oil. This situation is about to change at a speed in which few have even begun to fathom. In January the Obama administration will unveil a comprehensive energy strategy that will focus on energy independence, renewable energy and the rapid reduction of greenhouse gas emissions. The timing may in fact be fortuitous as the US economy deals with the impact of poor fiscal and financial oversight, an automobile industry on the brink of collapse, massive expenditures in Iraq and a workforce that has pushed into the low value service industry sector.

This current economic plight has created the perfect storm in which the American public is ready, willing and able to get behind a far reaching and in many ways revolutionary energy strategy. The key elements of this strategy will include massive investments in renewable energy to include wind and solar, a rapid retooling of the US automobile industry to highly fuel efficient vehicles with a bias towards plug-ins, the creation of a digital electrical grid, investments in high speed rail and an aggressive carbon cap and trade program. These investments will create millions of high value (green) jobs that cannot be outsourced and while the impact of this program will be felt across the board one of its most measurable short to medium term affects will be the rapid decrease in the import of foreign oil. Specifically it is expected that beginning in 2010 the United States will begin reducing foreign oil consumption by 10% per year equal to roughly one million barrels per day. That will equate to over $30 billion in reduced capital outflows in the first year alone something that will be welcome news noting our current balance of trade!

But that is only a small part of the story. The Obama administration plans to create a cartel of oil importing nations which will include the emerging giants of India and China. This group will share technology, processes and strategy with the stated goal of eliminating the group’s dependence on foreign oil. The importance of this move cannot be overstated as India and China are keenly aware of the fact that their economies are increasingly becoming dependent on oil from volatile regions. As such we can expect that this new group will move to aggressively to share technology that will reduce the use of fossil fuels. That technology will be driven by innovation that is becoming increasingly global with the rapid development of advanced battery technology, photovoltaic solar panels, wind turbine systems and biofuels.

The end of oil will not be without some resistance as there are many vested interests that would like to see our dependence continue. However that resistance will be no match for the economic and strategic pressure aligned against them. In the short term our energy independence strategy which can be equated with the Manhattan project or the Apollo program will help pull the United States economy out of a recession while at the same time creating continuous downward pressure on oil prices. Low oil prices will further reduce the threat of inflation as high oil prices also fuel higher food costs and a reduced threat of inflation will allow central banks to maintain an easing of monetary policy.

And what will the longer term consequences of this energy revolution be? As demand wanes and prices continue to remain low significant economic and social stress will begin to be seen in the various oil dictatorships of Iran, Saudi Arabia, Venezuela and others! Ultimately this will lead to regime change and social upheaval in many of these countries. For the United States and the other oil importing nations the oil producing regions will become far less relevant and as such far less likely to ever again require such a cost in national blood and treasure. There will clearly be man challenges along the way but in the end oil will go quietly into the night with nothing more than a whimper!

And China Takes the Lead! November 13, 2008