Japan's Nuclear Mess Will Have Lasting Impact on Oil Prices

There's some good news today about Japan's nuclear reactor crisis. The situation appears to be stabilizing, according to a top official at the U.S. Nuclear Regulatory Commission. Unfortunately, the problems experienced already are probably more than enough to set back the nuclear power industry several decades, even if the situation doesn't get anywhere near as bad as Chernobyl. This, in turn, is bad news for rising oil prices: they aren't going to get much relief from nuclear energy expansion in future years.

Rachel Nolan blogs for New York Times magazine that this accident isn't likely to approach anything near Chernobyl levels. In fact, she says, it's only about one one-hundredth as bad as the 1986 accident in Ukraine. It is, however, on the scale of the 1979 accident at Three Mile Island.

Even if Japan does manage to contain the problem at this stage, the psychological damage is already done. Last week Bradford Plumer wrote an article in the New Republic explaining Atomic Anxiety. He writes:

In fact, studies have found that one of the most serious health consequences of Chernobyl was the psychological damage, including post-traumatic stress, in people otherwise unaffected by the meltdown. Phantom symptoms and suicide rates skyrocketed. Fear, it turns out, is one of the worst effects of a nuclear accident. Which raises the question: Is there any cure for our outsized atomic anxieties?

There probably isn't. The recent incident likely scares many people for a couple of reasons. First, there's the location. This occurred in Japan -- one of the most technologically advanced and highly developed nations in the world. If it can't design and maintain a nuclear power plant to withstand a natural disaster, then no nation can. Even if the accident is ultimately contained, as Plumer notes, there's little doubt that the psychological effects will still be felt.

Second, there's the cause. Natural disasters can happen anywhere, often unforeseen. No place can escape the possibility that a natural disaster will upset a nuclear plant if they can't be designed to withstand the worst imaginable.

Third, there's the timing. It's 2011 -- not 1979 or 1986. Even as science and computers have become incredibly more advanced in those 30 years, nuclear accidents can still happen. Technological advancement has not been enough.

The average person isn't likely to care much about statistics that say few people actually have been hurt in nuclear accidents. Images of people exposed to nuclear radiation and drawings of fictional accounts, like three-eyed fish from the Simpsons, remain in the back of people's minds. This recent nuclear disaster will emphasize these dangers and minimize the benefits that people perceive. The recent attempts at nuclear expansion will likely be even harder now, as the Obama administration has already ordered nuclear regulators re-examine U.S. plants and crisis procedures.

And with a renewed obstacle in the way of further nuclear power progress, it will be that much more difficult to wean the globe off its oil addiction. Although other alternatives like solar power and wind will continue to move forward, nuclear power had been portrayed as an essential part of the solution. Without its expansion, the world will have to continue to consume more oil in its place. This is particularly bad news now, as oil prices rise.

The market hadn't taken into account this newly intensified challenge facing nuclear power prior to the Japanese earthquake, when oil prices were rising significantly. Now even if tensions in the Middle East subside, prices will have a harder time declining. Expectations of future oil demand should now be estimated to be higher due to nuclear power's recent black eye.