Reality Check: $5 For Gas?

I remember a story I heard a few years ago about gas prices. My youth leader told me about how only a decade before whenever he and his friends were bored on the weekend they would all pitch in a dollar, fill up a tank of gas, and simply cruise around town. Personally, the notion of four or five dollars to fill up a tank of gas for a weekend is hard to believe after dropping $55 to fill up my Toyota Camry the other day.

These days it has hard for anyone to remember a day when a gallon of gas cost less than a value menu item at McDonald’s. A combination of foreign pressure and a lack of effective domestic policy have handed Americans a national average of $3.84 a gallon according to AAA, and with no sign of improvements many wonder if $5 a gallon for gas is a possibility in 2012? 1

The relationship between the United States and Iran is by no means friendly. Sanctions over nuclear development, disagreements over policies in the war on terror and the Middle East in general, and tensions created by military operations have generated a situation on the brink. Recently Iran flexed its military power by performing military operations in the Strait of Hormuz. The Strait of Hormuz is possibility the most important waterway in the world. It connects the Persian Gulf to the Gulf of Oman, and a vast majority of the oil produce in the Middle East passes through the Strait every year.2 Additionally, sanctions on Iran over nuclear development have increased tensions and make the idea of retaliation by Iran, such as blockading the Strait, more realistic.

Syria is also a source of concern for oil prices in the United States. The conflict between the government and rebels in the country have limited oil production and increased tensions in the area. While some experts believe that energy prices will begin to fall in the Middle East, these high tensions make it easy for a situation, such as a blockade by Iran in the Strait of Hormuz, to cause mass speculation and panic, skyrocketing gas prices.

While it is important to understand the causes of these foreign tensions, many Americans will still ask what this means to them. In reality it means $5 a gallon is a realistic expectation for 2012. Not since the gas shortages of the 70’s has there been such a perfect storm of high demand and limited supply, coupled with high tensions in oil producing regions. The United States government has next to no foreign influence when it comes to oil production, and the country’s reserves are by no means large enough to combat possible skyrocketing gas prices. Tensions in the Middle East are only increasing, and it is unlikely that in the near future Iran, the U.S., and other countries will reach a greater understanding of each other. American consumers need to realize that the days of $2 a gallon are over, and the days of $3 and change a gallon are numbered. High-energy costs are part of the future of this country and planet as demand continues to grow worldwide and traditional supplies dry up. So what can we do about it?

The solution to high-energy prices is multidimensional. In the short term it will take consumers using less oil, driving demand downwards by means of finding alternatives to driving to control prices. Longer-term it will take not only increasing domestic production, but also exploring new energy sources such as domestic natural gas, solar, wind and nuclear power. This combined with a societal change of putting greater importance on saving energy by driving more fuel-efficient cars, finding energy saving technology, and working as a country to reduce dependency on one source of energy are the best hope this country has to combat rising energy prices. In the short term, however, 2012 gas prices will make it hard on many consumers. Perhaps higher gas prices will help focus attention on a problem that will only grow as the population of the Earth grows: energy shortage. Five dollar a gallon gas is most likely a feature of America’s future; one that we all must prepare for.

References:

1 fuelgaugereport.AAA.com
2 worldatlast.com

Stephen Padgett

Stephen Padgett

Stephen Padgett is a current junior at the University of North Carolina at Chapel Hill. He is working toward a BA in Economics and Political Science and plans on graduating early in December of 2012. Although he does not know what he wants to do for his career, he is looking forward to an opportunity with Credit Suisse’s Operations Team this summer in Raleigh.

Financially Stephen grew up in a family that preached saving and living below your means. That, in part, translated to his interest in Economics, especially how economics can affect individuals’ financial lives. Through his financial markets class in the fall of 2011, he furthered this interest by analyzing macroeconomic events. Stephen believes that finance, personal finance in particular, is a subject severely left out when it comes to public schooling in this country, and it is a problem that has manifested itself and contributed to many of the problems seen today. He also believes that education is the key to improvement and hopes that through his writings he will be able help people learn about finance, macroeconomics, and how to be financially savvy for the future.

In his free time Stephen enjoys playing and watching sports, wakeboarding, sailing, and country music. At UNC he has participated in Strive for College, UNC Dance Marathon, and UNC Relay for Life.
Stephen Padgett

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