Even with oil knocking on the door of $100 (U.S.) a barrel, this still isn't a 1970s-style global oil crisis. But it's getting close - close enough that dramatic 1980s-style changes in energy consumption might not be far off.
Experts say crude prices, which topped $98 during trading yesterday, aren't having the same impact on consumption patterns and the global economy that $40 oil had in 1980 - even though the two prices are similar on an inflation-adjusted basis - because the world's economic activity is now generally less energy-intensive. But they believe we are finally approaching levels where the impact, both on consumers' well-being and government policy, could trigger the kind of deep shifts in consumption patterns that the world experienced 25 years ago.
"We are about to be in the same situation that we were in the 1970s oil shock," said Frederic Lasserre, head of commodities research at Société Générale in Paris. "At this level, you see a real change in consumer behaviour."
It happened before. Prior to the 1970s energy crises, world oil demand had been climbing at more than 7 per cent a year. But following the 1979 oil crisis, widespread conservation and energy-efficiency initiatives, including vast improvements in vehicle fuel efficiency, reversed the trend. Within five years, global oil demand was actually shrinking.
Experts believe we are now closing in on a tipping point where similar dramatic changes could take place.
Société Générale's "Oil Burden" index, which measures oil price impact on global gross domestic product and has a base of 100 set in 1975, sat at just 75 at the end of last year - when average prices were $30 below current levels. While the company hasn't crunched the index numbers at current prices, "We have a feeling we are now approaching the 100 [index]level," he said. He noted that energy costs are now eating about 4 per cent of U.S. disposable income - similar to levels at the heights of the 1970s oil crises.
He suggested $120 a barrel could represent the level at which oil's damage would be on par with the 1970s. But others feel the threshold could be even higher - because the emerging-market economies that have been driving demand growth seem less bothered by high prices than their developed-world counterparts.
"In the last couple of months, you're starting to see there is a demand response. It's small, but it's there," said Peter Tertzakian, chief energy economist with ARC Financial Corp. in Calgary. "But realistically, it's not enough yet - and it's got to come from the other side of the world."
In the developing world, experts said, demand is less sensitive to price than to personal incomes, which continue to rise rapidly. In addition, many of the countries showing the most rapid demand growth - including China, Russia and much of the Middle East - subsidize consumer fuel prices.
Mr. Tertzakian feels oil might need to climb above $130 a barrel before consumers globally change their ways. Still, he thinks that with lower-income consumers already feeling the pain, lawmakers could be under political pressure soon to step in with energy-conservation policies, as they did in the 1970s.
"Over $100, you could start to see policy makers saying, 'OK, we've got to do something' ," he said.
Vincent Lauerman, energy economist and president of Calgary-based Geopolitics Central Inc., said there are three key pressures that drive governments to impose energy policy - high prices, environmental concerns and national energy security. And right now, all three are growing.
"It's a triple whammy," he said.
For that reason, he argued, the Organization of Petroleum Exporting Countries needs to seriously rethink its current position against raising the cartel's production levels, or risk triggering a policy-driven reversal in global demand similar to the early 1980s.
"OPEC is shooting itself in the foot in terms of long-term demand."
Still, even with the political will, it could be considerably harder now for the world to reverse the demand trend for oil, Mr. Tertzakian argued, since back in the 1970s there was "a lot of low-hanging fruit."
"The easy changes are behind us."
David Parkinson