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The Return of $100 a Barrel Oil: A Blessing and a Curse?

The people who spend their lives buying and selling oil are making big bets that the price is going up, with a number of analysts predicting the return of $100 per barrel oil within months. This makes a lot of people nervous, for good reason. When oil gets expensive, life tends to get ugly. The long gas lines of the 1970s proved that. So did the price spike in 2008, which had more than a little to do with knocking over the house of cards we all lovingly referred to as the world financial system.

Pretty much the only consistent energy policy we’ve had in the United States, if you can call it that, is the desire to keep energy cheap. But cheap energy has downsides, too. In fact, having oil at $100 a barrel is both a blessing and a curse. Let’s look at what might happen:

Blessing: Higher fuel prices make alternative vehicles a better deal. Believe it or not, some of the people rooting for higher gas prices are automakers, particularly those making hybrids, or the new electric models like the Nissan Leaf and the Chevy Volt. Those cars still cost more to buy up front than a conventional gas-powered vehicle. If gas prices are high, you can make that investment back by what you save on gas. When gas prices are low, these new vehicles don’t make as much economic sense for the average driver.

Curse: You’ll be paying more for everything else. One of the big lessons of 2008 was the way the price of oil drives the price of everything. Nearly every product has to be shipped, and just about every form of transportation you can name relies on oil. That kind of inflation could be bad for everybody.

Blessing: We’ll start seriously looking for alternatives, both “green” technologies and different kinds of oil. When oil is cheap and plentiful, investors and energy companies just aren’t as interested in putting their money into alternatives , or even into new forms of conventional energy, like biofuels and Canada’s “tar sands.” Those tar sands, for example,  could be a huge source of oil, but they also cost about 30 percent more to produce than conventional oil.  When oil starts circling the $100 a barrel mark, all these options can get more traction.

Curse: We’ll take bigger environmental risks to get oil. High oil prices will accelerate an existing trend, which is that the world’s remaining oil reserves are increasingly in more remote, more environmentally sensitive areas. Getting this “extreme” oil, with deepwater offshore wells and new fields in the Arctic, means taking more risks – and as the BP spill showed, those risks can come back to bite you. The process for developing Canadian tar sands produces a lot of greenhouse gases, even leaving aside what you produce with the gas in your car.

Blessing AND Curse: This could be just a short-term spike. Nobody really knows whether oil will jump up to $100 a barrel and then fall back down again, hold stable, or keep going up. You can certainly argue this is just a blip (Steven LeVine at The Oil and the Glory makes that case). And if this is just a temporary problem, then the shock to the still-fragile world economy will be relatively brief.

But if this is just a spike, then many of the potential blessings, like boosting the search for other energy options, won’t materialize. If oil prices drop again, our enthusiasm for electric cars and alternative energy will probably fade too. It’s certainly happened before.

The biggest curse of all? It’s the complacency that engulfs us when oil prices are low. No matter what happens this year or next, long-term trends are simply not in our favor. Experts, like the International Energy Agency, conclude that “the era of cheap oil is over,” because demand is rising so rapidly all over the world. We can’t really afford to put the search for new energy options on hold every time oil prices fall, but basically, that’s what happens.

To solve our energy, environmental, and economic problems, we need a steady, consistent strategy to develop alternatives and diversify our energy sources, one that runs over decades. That means looking past the number on the gas pump and thinking about what’s going to be a blessing – or a curse – in the long haul.