What Happens When Oil Hits $200 a Barrel?

Arjun N. Murti is an analyst at Goldman Sachs, and he made headlines this week when he predicted that crude oil would soon go to $200 a barrel. You don't really have to be an expert to make that call — petroleum prices are plainly out of control, and there's little reason to expect them to return to pre-crisis levels.

High oil prices: feel the pain.

That price will mean $6 a gallon at the pumps, a level of pain that I'm sure most Americans don't want to contemplate. But contemplate it we must. As I typed this, the price was over $135 a barrel, and Democratic leaders in Congress were having a field day excoriating outrageously compensated oil executives at a hearing that turned into an inquisition. They've done that before — it plays well back in the districts — but vitriol alone won't make prices go down. Big Oil is cashing in, but it's riding trends set on the international spot market.

One of the most prescient observers on the subject of peak oil is the writer James Howard Kunstler, whose nonfiction book The Long Emergency envisioned a post-oil economy that disenfranchises large sections of the Southwest (we won't be able to air-condition it) and suburbia (not viable without motorized transportation).

Kunstler's latest book, World Made by Hand, is a novel that takes this idea even further. It envisions a dystopia in which transportation is difficult, food is locally grown and centralized government is slowly disappearing. It's bleak, and maybe unlikely, but definitely a possible future if we can't replace cheap oil.

James Howard Kunstler: "We've entered a new era of American life."

I asked Kunstler, who maintains a lively blog, what would happen if Murti's prediction comes true. "The effect of $200-a-barrel oil will be dramatic across the whole spectrum of normal American activities," he says. "The airlines are already buckling above $130. We're going to have severe problems with everything from commuting to food production to home heating."

He doesn't stop there: "We have already entered a new era of American life, and the American public doesn't seem to get it. You can't blame them, I suppose, since leadership has been so poor. But it would be a mistake to think that these leadership failures lie just in the political realm. Leadership in business, the media, and every other sector has been poor, too. The Long Emergency is underway." Uh-oh.