THE BLOG
06/27/2006 12:09 pm ET Updated May 25, 2011

Oil Crisis Flows Deeper Than Pump Prices

Skyrocketing oil prices translate into an unprecedented increase in the cost per gallon at the pump. Many have rearranged their monthly budgets in order to accommodate the bigger hit on their pocketbooks.

Higher gas prices have caused the president to take a hit politically, while Congress proposed perhaps the most ridiculous legislation of the session: offering the American tax payer a onetime $100 rebate, supposedly as an offset to the petrol pain.

While the increase at the pump has been widely discussed, the conversation usually ignores two essential points. First, $3.00 per gallon is still good relative to most other countries. If the people of Great Britain or France woke up tomorrow with American gas prices they would be dancing in the street.

Second, and most important, increased gas prices are the least of our worries. We are a petroleum-based economy; if we do not take conservation seriously our way of life will alter dramatically.

Petroleum supplies 97% of transportation energy. In addition to cars, petroleum fuels provide the power to transport almost all of the country's needs, diesel for trucks and locomotives, fuel for ships and airplanes.

Oil has a staggering impact on our collective way of life. According to the Association of Oil Pipelines, more than 16% of the nation's economic output stems directly from transportation. Significant portions of the economic benefits from core national industry sectors could not function without petroleum. Almost all the resins and other compounds used to manufacture plastics are made from oil feed stocks. Many medicines are manufactured from petroleum products. Farmers depend on petroleum-based fertilizers.

The five core oil dependent industries are: food and related products, drugs and pharmaceuticals, plastics, industrial chemicals, and motor vehicles. Collectively, they combine for more than $940 billion in revenue and roughly 2.7 million employees. Moreover, the Defense Department buys more oil products than any other single buyer in the world, roughly $3.6 billion annually.

The impact on the economy is already being felt beyond the pump. Continental Tire announced recently announced 481 workers in its Charlotte, NC plant, would be laid off. The cutbacks are in part a response to the higher raw material costs as well as declining demand. The company, in a press release, raised the possibility that it may close the plant altogether. Tires are made with synthetic rubber produced with a chemical derived from oil. USA Today reported that approximately two-thirds of Goodyear's raw material costs are related to oil. The company's raw materials prices nearly doubled from 2004 to 2005 to $5.6 billion.

It seems that altering how and what we drive ought to be the least of our concerns. It is hardly a well-guarded secret that American car manufactures cannot survive on the backs of SUVs.

As you read this piece look around and see just how dependent you are on oil. The plastic cup from which we drink, the keys on the computer from which we type, or the produce that sits on our tables are all oil-dependent.

We can continue to drink the Kool-Aid of immigration and same-sex marriage debate, but neither issue stands to impact the nation as does escalating oil prices along with the increased global competition.

Drilling in Alaska is not the answer. The solution will not be cheap. It will require major changes to our transportation infrastructure. That will require additional resources and a corresponding commitment.

Our oil-based dependency also takes into account the so-called war on terror. If we reduced our insatiable appetite for oil would we still need to occupy foreign countries in the Middle East, ignore the Geneva Convention, or run roughshod over our own Constitution?

We can rest in the comfort of complaining about higher fuel cost as our perceived divine right to artificially suppressed prices ebbs away. That has little relation to present-day reality any more than placing the blame solely on the gluttonous salaries of oil executives.

If we are not preparing ourselves toward a comprehensive plan that reduces our oil dependence we may be dooming our future to a global crisis.