Oil: how bad can it get?

It was about ten years ago (when oil was about $10 a barrel) that Osama bin Laden said that the price of oil should be $144 a barrel, in order to undercut the West and compensate Muslims for harm done to them. The New York Times, a month after 9/11, referred to the possibility when discussing nightmare scenerios. We're there now, and to the extent that bin Laden can claim some of the credit (deserved or not), this is looks like a geopolitical victory and a propaganda coup.

How bad can things get? The New Scientist (28 June) reports on a 2005 simulation of a hypothetical oil shock. The article is subscription only, but interesting commentary on it can be found here. An excerpt:

According to the New Scientist report, “In 2005, a group of current and former US government and national security officials were asked to address [the question of a large-scale supply interruption] in a live role-play exercise.” Teaming Shell Oil, counter-terrorism specialists and industry analysts, the simulation explored the possibility of a mounting compound disruption of supplies. Over the course of the 2005 simulation, the price of a barrel of crude reached $123.

“Against the recent peak price of $139, that rise would take the cost per barrel to $295,” reports Ian Sample for the New Scientist. Speculation due to the dim security outlook would then push the price to $161, which translates to $341.69 when accounting for current prices. Former CIA chief James Woolsey, one of the simulation participants said the scenario explored was “relatively mild compared to what is possible”.

Which is one of the reasons Woolsey drives a Prius (and so do I). He also uses solar power and biofuels, and as the initial capital expenditure drops, solar is looking better and better to me, too. I'm counting the months until we see a practical electric/plug-in hybrid on the market.