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“Now that consumption is roaring back, there is whiplash in the supply chain.” Richard Baldwin, Graduate Institute in Geneva.

“Predicting oil prices is anyone’s guess.” Soren Skou

Let us rid ourselves of the fiction that low oil prices are somehow good for the United States. Dick Cheney

I am going to take a hard right turn in this week’s edition of More Than Meets the Eye. We have been following some of the lesser investigated, but increasingly written about conflicts in Syria, the apparent disappearance of al Qaeda, and the ill-forgotten adventures of happenings in Iraq. All three of these have been dwarfed by the pull-out of Western troops in Afghanistan, the relatively easy takeover by the Taliban, and COVID vaccination mandates.

This week I want to explore a reality that all of us have probably begun to notice: rising fuel prices at local gas stations. What is important to understand is that gas prices at the pump are only one of the many consequences of increasing crude oil prices. There are several reasons why this is happening, and there will be myriad implications that will emerge from it in the near future. 

Oil has shaped international conflict for decades. According to one estimate, twenty-five to fifty percent of interstate wars between 1973 and 2012 had oil-related motivators. The cyclical nature of oil’s contribution to global conflict, however, is not well understood. Not only are oil prices cyclical, but the geopolitics of oil is linked inexorably to the same boom and bust price cycle. Military adventurism, proxy wars, and regional pathologies in the Middle East expand and contract with the ebb and flow of massive petrodollar accumulations related to the oil price cycle.

This week I want to ask and attempt to answer three questions: “How did the current increase happen?”, “What are the likely economic implications?”, and “What are the Global Security Implications?”


How did this happen?

  1. As consumers emerged from lockdown with money to spend, inflation naturally ticked higher.
  2. The basic driver is a mismatch between demand, which has come roaring back after the world basically went on lockdown for a year, and supply, which has yet to recover. Globally, oil investment in new production capacity is still well below the level it was pre-pandemic—and even that was much lower than the boom years before 2014. 
  3. Over the past few years there has been a reluctance from U.S. shale oil producers to turn on the taps immediately after oil prices go up; instead, burned by years of poor returns, shale producers have, for the most part, kept strict financial discipline, which has kept U.S. oil output below pre-pandemic levels. Similar dynamics affect gas production, with the twist that Europe’s main supplier—Russia—has been essentially standing on the hose in recent months, limiting extra gas supplies for export to Europe, which has kept prices at record levels.

Crude oil is more than $85 per barrel, its highest level since 2018. The price of natural gas is sky-high, especially in Europe, where it has roughly doubled since the summer and four times more expensive than one year ago. The price of coal is soaring, with the cost of coal in China regularly breaking records and Australian ore doubling since the spring. 

Energy companies pay a wholesale price to buy gas and electricity, which they then sell to consumers. As in any market, this can go up or down, driven by supply and demand.

Prices typically rise in response to more demand for heating and people turning lights on earlier in winter, while those in the summer period are usually lower.

“What we will see this winter is a warm-up, a rehearsal perhaps of a larger structural problem that will materialize,” said Bob McNally, founder, and president of Rapidan Energy Group, a consultancy. “This is how energy markets behave when you have demand meeting insufficient supply.” “There are a lot of short-term issues that have caused oil and gas prices to spike, including extreme weather, which could ease in coming months. But due to years of underinvestment in oil production capacity, the world could be left struggling to meet still-rising demand for fossil fuels.”

What are the likely economic implications

According to the U.S. Energy Information Agency:

The historic plunge in global energy consumption in the early months of the Covid-19 crisis last year drove the prices of many fuels to their lowest levels in decades. But since then, they have rebounded strongly, mainly as a result of an exceptionally rapid global economic recovery (this year is on track for the fastest post-recession growth in 80 years), cold and long winter in the Northern Hemisphere, and a weaker-than-expected increase in supply.

Natural gas prices have seen the biggest increase, with European and Asian benchmark prices hitting an all-time record last week – around ten times their level a year ago. US month-ahead natural gas prices have more than tripled since October 2020 to reach their highest level since 2008. International coal prices are around five times their level a year ago, and coal power plants in China and India, the world’s two largest coal consumers, have very low stocks ahead of the winter season.

It can be expected that nearly half of U.S. households that heat primarily with natural gas will spend 30% more than they spent last winter on average—50% more if the winter is 10% colder than average and 22% more if the winter is 10% warmer-than-average.

It can be expected that the 41% of U.S. households that heat primarily with electricity will spend 6% more—15% more in a colder winter and 4% more in a warmer winter.

It can be expected that the 5% of U.S. households that heat primarily with propane will spend 54% more—94% more in a colder winter and 29% more in a warmer winter.

It can be expected that the 4% of U.S. households that heat primarily with heating oil will spend 43% more—59% more in a colder winter and 30% more in a warmer winter.

The bottom line is that economically there is an interesting and potentially difficult time ahead this winter across the globe. This condition appears to be the intersection of several tectonic shifts that have taken place across most markets internationally. Variables that are impacting this situation are 

What are the Global Security Implications?

Russia’s weaponization of gas supply is partly responsible for the huge spike in gas prices. 

The present situation demonstrates the difficulty of implementing the joint statement reached between Germany and the United States a few months ago relating to Nord Stream 2. That understanding said, in part, that the United States and Germany would take action if Russia used energy as a political weapon, with sanctions as a distinct possibility. 

A strong argument can be made that Russia’s recent actions constitute such maligned activities, but it is unlikely that the United States and Germany would agree. Even if they were to agree, it is unclear what the appropriate retaliatory action would be. It is also possible that Russia is overplaying its hand. Russia’s failure to cooperate in overcoming the crisis could lead to an even stronger European commitment to find alternative sources and to implement the energy transition as quickly as possible, all of which would lessen dependence on Russian gas.

Rising oil prices also have the potential of widening the gap between the developed and developing worlds. The results of high oil prices in developing nations is a very cyclical process and almost opposite that of developed nations. High global oil and natural gas prices slow global and regional economic growth and encourage energy conservation. This causes petroleum demand to slow, lowering oil prices. After High petroleum prices have run their course, social and political problems in the region reemerge as oil prices recede. 

Regional governments have fewer resources to spend on restive populations that have become accustomed to generous handouts enabled by high oil prices. Job creation and visible social programs slow, dissatisfaction rises, and the consequences of economic downturns incite support for militants. Ensuing instability forces governments to use newly purchased arms purchased when oil prices were high from developed countries, which ironically begins the cycle yet again, as new conflicts disrupt oil supplies. 

In this manner, the world experiences perpetuating patterns of military conflict, followed by oil supply crises, and accompanying global financial instability. In effect, the Middle East resource curse has become globalized. The challenges this is presenting on humanitarian, security, and economic fronts have become increasingly dangerous. The arms race that has accompanied the rise of oil prices through the 2000s has been no exception and is now all the more complicated due to the violent participation of sub-national radicalized groups that are less susceptible to diplomatic pressures or initiatives. In this emerging geopolitical context, the organizations like ISIS and Al-Qaeda are increasingly putting oil infrastructure at risk, laying the groundwork for a future oil crisis that may prove harder to solve than in the past. 

Regardless of the promise of new oil and gas supplies from shale formations in North America and beyond, a third of global oil production is still sourced from the Middle East and North Africa (MENA) region. While this might be able to be reduced over time, for the next few years, the fate of Middle East oil will still have huge impacts on the global economy.

In conclusion, it can be easily seen how oil price surges and reverses are cyclical phenomena. Historically, whenever oil prices increase it begins a new cycle that impacts developed nations and developing nations quite differently. These oil price fluctuations impact the entire world. In the developing world, economies contract and, as a result, all goods and services increase in cost. Oil price escalation impacts transportation, which in turn impacts the cost of goods and services. Home energy consumption goes down, but the cost goes up, creating an economic condition of frustration for the national population. Some nations will step in and release a portion of their national reserves to try and regulate costs, others will subsidize energy costs in an attempt to regulate prices for the lower-income citizens. 

In developing nations, when oil prices go up, industrial output also decreases as companies cannot keep up with cost increases to do business. When industrial output decreases, global consumption goes down, increasing reserves of goods. When reserves begin to fill up, prices inevitably go down. If the cycle lingers too long, then there are demonstrations and unrest, resulting in political change and possible civil war. This is a pattern that has played itself out repeatedly throughout modern history.  


It is easy to become frustrated, even angry, over price increases, especially at the pump or your home energy consumption meters. It can be easy to blame the political situation or corporate greed, both of which exist, but it is important to also be able to discern between cyclical patterns and fiscal mismanagement. This is no easy task, especially if you already have a low level of confidence in national and/or regional leadership. However, learning the nuances and understanding the cyclical patterns and economic trends will help prepare you for the impacts of these systemic financial rhythms.


Few things impact our lives more than global oil prices. They impact our heating/cooling costs, our transportation costs, our food costs, our construction costs, our health-care costs, and our recreational costs. Seasons bring with them a variety of different costs. Cooling costs and transportation costs for recreation generally go up in the summer. Heating costs usually go up in the winter months.

Budgeting for energy fluctuation cycles can be a great way to mitigate the impact of these events. In the future, there will be an increasing number of renewable energy options as well. Taking advantage of those options is also a good way to get ahead of the cyclical energy price curve, even though that is still pretty far out into the future.

The follow-up.

Sudan General Declares State of Emergency in Coup Attempt…

Israel’s Shadow War Dented Iran’s Takeover of Syria, But Only Temporarily…

The feed-back.

For your comments or questions about any of our digests please feel free to write to me at:


Jeff D. Colgan, “Fueling the Fire: Pathways from Oil to War,” International Security, Vo. 38, No. 2 (Fall 2013) 147-180.

Estimates compiled by authors from a variety of media and analysts reports including Citibank, IHS CERA, Iraq Oil Report, Iraq Energy Institute, Harvard University Geopolitics of Energy project (case study author Luay Al-Khatteeb), Reuters, Energy Intelligence Group, Energy Compass, Middle East Economic Survey, AP, and Platt’s Oilgram News. Also off the record interviews with regional and U.S. government officials and oil industry executives

Short-term Energy Outlook- U.S. Energy Information Administration (EIA)…

Toby Craig Jones, “America, Oil and War in the Middle East,” The Journal of American History, 99 (1) (June 2012), 208-218.

Mahmoud A. El Gamal and Amy Myers Jaffe, Oil, Dollars, Debt and Crises: The Global Curse of Black Gold (Cambridge University Press, 2010), 162.

Jeff D. Colgan, Petro Aggression: When Oil Causes War, (Cambridge University Press, 2013), 21.


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