The pain of skyrocketing gas prices could save us from economic disaster, experts say.

America's wake-up call

May 28, 2004|By Robert Little and Lorraine Mirabella | Robert Little and Lorraine Mirabella,SUN STAFF

Breaking the $2-a-gallon gasoline price barrier was unpleasant, and your lightened wallet may be eliciting visions of Ford-era rationing and fill-up lines beyond the horizon, but geologists and economists think the industry and the economy will be just fine. Gas is actually cheap, they say, when you consider the rising costs of everything else.

But another consensus has emerged among the experts: This might be a good time to panic anyway.

The problem isn't that gasoline prices are too high but that prices over the past decade have been far too low, this reasoning goes. Americans have forgotten how to conserve, and the energy industry, always hungry for profits, spent those years neglecting its refineries and distribution systems and all but ignoring the frightening reality that the planet may actually be running out of oil.

The consequence is a growing imbalance between the world's increasing thirst for fuel and the oil industry's increasing difficulty providing it - a problem that could lead to economic mayhem, price swings, gas shortages and pump lines that make the 1970s seem like a comparative utopia.

This new crisis could strike in 30 years or five years or even three months, depending on whom you believe. And this time, 1970s-era answers like a 55-mph speed limit or a trans-Alaska pipeline won't be any help.

So while you're fretting over your broken budgets and the horrors of a $40 top-off, some industry analysts think you should also give thanks that America's commuter society is finally getting a decent jolt of gas-price hysteria.

"Trust me, this $2-a-gallon price will be a blessing," said Matthew R. Simmons, a Texas banker who specializes in the petroleum industry. "We should be worried about energy in this country, and maybe this will get people focused."

Today The Sun begins a four-day series exploring the effects that rising gasoline prices are having on commuters, farmers, small-business owners and virtually all of 21st century existence in the United States. Gasoline is stirred into the social and economic mix like no other product in American society, and from taxi drivers and tour bus operators to driving schools and police departments, the dizzying run-up in prices the past six months has had a stinging effect on profit margins and daily life.

And yet the near-universal view of economists is that times are really not that bad for gas prices in the United States. When you consider inflation, prices have actually declined considerably since 1981, when a gallon cost the modern-day equivalent of about $2.79. "I don't feel that we're anywhere near a panic level. Oil prices would really have to skyrocket to get back to 1980s levels," said Gina Martin, an economist for Wachovia based in Charlotte, N.C. "A lot of the concerns are overblown."

Heartburn at the gas pump naturally leads to comparisons to the Nixon- and Carter-era gasoline scares, but industry watchers say few parallels exist between the current price increases and so-called oil crises of 1973 and 1979.

The crisis of 1973 was closer to an all-out shortage. A coalition of 11 Arab governments placed an export embargo on the United States for supporting Israel during its three-week "Yom Kippur War" with Egypt and Syria.

The similar crunch in 1979 was sparked by revolution in Iran and the subsequent hiatus of oil exports there. Industry analysts say the long gas lines that both incidents created in the United States were more a result of unnecessary panic than actual shortages, as consumers rushed to buy more gasoline than normal. Rationing programs such as alternate-day sales based on license plate numbers and closing service stations on Sundays contained both situations.

Many causes

The reasons for the latest rise in gas prices are far less tangible, and can be attributed to an amalgam of factors such as terrorism jitters, political instability in the Middle East and Venezuela, restricted oil supplies and emergent economies in China and India. The war in Iraq - as well as overestimating the amount of oil that Iraq would be producing by now - has made the situation worse.

The cumulative result is an increased price for crude oil, which accounts for roughly 42 percent of the cost of gasoline. The price or a barrel of crude eased briefly last week when Saudi Arabia announced plans to make more oil available to the market, but only after reaching an all-time high of nearly $42.

Combine that increase in the price of raw product with higher taxes and costly blending requirements imposed by various governments, and the result is a rash of 2s popping up on gas station signs across the country. The price increase is frustrating for consumers and a hindrance to the recovery of the nation's economy, analysts say - and it's also a perfectly natural and expected consequence of the free market.

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