It should be reassuring that the “energy crisis” one often reads about is always “looming.” In recent months the price of oil has been persistently higher than $50 a barrel. Just a few years ago, when it fell to less than $10, a price that high would have seemed both improbable and quite scary. It would have evoked memories of the oil shocks of the 1970s and the ruinous economic dislocation that followed. But in 2006, preoccupied as the country may be with its oil addiction and energy security, we still aren’t in a crisis, apparently. The crisis is only looming.
Looking at the performance of the economy, you could be forgiven for failing to notice the price of oil altogether. Growth is strong; unemployment is low; inflation is under control. Energy shocks do not look like this. Oil at $50, $60, $70 a barrel? People resent the price of gas at the pumps, yes. But the economy seems to glide on, impervious.
Of course, high oil prices have acted as a brake on an otherwise strong economy—but only a modest brake. The biggest reason is that the economy uses energy, and especially oil, much less intensively than it did before. Since 1970 the country’s economy has grown by roughly 200 percent; its consumption of oil has risen by just 40 percent. The economy still needs oil to function. And in absolute terms, it needs more than before. But it needs far less in relation to output; that is, oil is a smaller component in the goods and services that America produces than it used to be. This makes a huge difference. Why? Because any given rise in oil’s price becomes easier for the country to absorb.