Erik Larson

Oct 1, 2007

Globalization and Oil

Oil is screwing everything up. Set aside its role as the economic enabler of terrorism. Oil prices are tied directly to transportation costs, and this is tied directly to the success of the emerging global economy:

“On average,” reports the investment bank CIBC World Markets, “a one percent increase in fuel prices leads to a 0.4 percent increase in total freight rates.” In terms of a potential impact on world trade, say the authors of the report, Jeffrey Rubin and Benjamin Tal, “the $30 per barrel increase in crude prices since late 2003 is equivalent to an average tariff increase of 5 percentage points — more than doubling the current average world tariff rate of 4.5 percent.” ( )

This means that, in practical terms, our ability to liberalize trade and in general to create global interdependencies (to play “nonzero games”, as Wright noted) is directly tied to oil prices. The global, high tech, new age economy turns out to have a strange dependency on oil wells in Saudi Arabia. The Middle East.

I’ll argue elsewhere that we really, really want, in general, three ideas to take root (and to guide policy wherever suitable):

  1. Stabilizing Iraq is in the first world’s (indeed, the world’s) strategic interest, even if it means ongoing military involvement by America and other nations.

  2. Developing renewable energy technologies capable of replacing petroleum sources is at least as important as the push to develop the Atomic Bomb was in the 1940s, or something like the development of a nuclear missile shield is today. We ought to harness the best in us and announce a project to deliver these technologies to the world.

  3. Continued trade liberalization and globalization will create “win win” interactions among nations states that will, over time, result in more prosperity and less geopolitical tensions. Globalizaton is a tool that we must use to build prosperity. Explicating that idea and communicating it to the public and to policy makers and business leaders is a top priority.

These ideas are all tied together, and they sit atop a theoretical landscape that must itself be explained more fully (elsewhere). The people to carry this message I call “practical progressives”. These people will save the world. We ought to know who they are, and what they think (and will need to think), to usher in a new and better world.