Ladies and gentlemen, please don’t start your engines! Gas is currently more expensive than it’s ever been. And we haven’t seen an energy crisis of this magnitude since 1973 when Saudi Arabia declared an oil embargo on any country that supported Isreal, which caused gas prices all over the Western world to skyrocket.
And the situation nowadays isn’t all that different. As a result of the Russian invasion of Ukraine, President Biden signed an Executive Order on March 8 that banned the importation of Russian crude oil into the United States. And, unfortunately, Russia is one of the biggest producers of crude oil in the world, much like Saudia Arabia was back in 1973.
So, as a result of this war, as well as a ton of other factors, we’re back in a similar position to the one we were in in 1973, except that things may be even worse this time around. Yes, with the current U.S. sanctions on Russian oil and similar sanctions having been made by the EU, plus a massive production cut from Saudi Arabia, the Western world is facing a gas crisis that‘s just about as bad as it’s ever been.
In fact, it’s estimated that the U.S. has just 25 days of diesel fuel left. That’s seriously concerning. So, basically, we’re facing a situation where oil supply is extremely low, reserves are drying up, and prices are rising to historic levels. And that’s not good for anyone. But, there’s also not much we can do about it.
We certainly can’t go back into business with the Russians because that would be indirectly funding their war effort against Ukraine, which would be awful. But, we also can’t just fill that gap left by Russian oil overnight. Before this war began, Russian oil constituted 8% of all U.S. oil imports, and that’s a lot of our supply that’s gone missing.
So, in this article, I’m going to go a little deeper into what’s going on with the 2022 oil crisis, how far this crisis is going to affect all other sectors of the economy, and what you can do to insulate your money from this economic shit-storm. Excuse my French.
This is the 2022 oil crisis: what to do when there’s no more gas.
The OPEC Problem
So, let’s just start off by saying that this whole oil crisis has been especially hard on the United States. Why is that? Well, we consume more oil than any other country on the face of the planet. Currently, our oil consumption is sitting right around 19 million barrels per day. Compare that to China, which consumes 12 million gallons per day, and you see that we consume more oil than any other country by far.
However, the U.S. actually produces 14 million barrels of oil per day, making us also the number one producer of oil in the world. I bet you didn’t know that we produce more oil than any other country in the world, did you? Well, it’s true. But, we’re still running at a deficit of about 5 million barrels per day.
However, that’s not the whole picture. The United States actually exports about half of its production to other countries and then turns around and buys the rest of what we need from Canada, Mexico, Russia, Saudi Arabia, and Colombia.
So, you may be wondering why the United States would export its oil even though we operate at a deficit. Well, we produce a whole lot of crude oil. And a country needs other types of oil to operate as well. So, while we have an excess of crude oil, we have a major deficit for other types of oil like petroleum. So, we trade away a ton of our crude oil and, meanwhile, we’re buying up the other kinds of oil that we need.
All of this trading has made the United States one of the largest exporters of crude oil in the world. Now, that may sound fantastic for the U.S. because we’re making a ton of money by selling our oil overseas. However, not everyone is happy about that.
Specifically, OPEC wasn’t so thrilled. If you don’t know who OPEC is, it stands for the “Organization of Petroleum Exporting Countries” and it’s basically a collection of 13 countries that have decided to work together to control the global oil supply. They currently control more than 80% of the world’s crude oil. And, long story short, they don’t want to give up their market share anytime soon.
Essentially, they see the U.S. as a threat and are willing to take drastic action in order to retain their share of the global oil market. So, OPEC and the U.S. have been at odds for years now and the tension has never been greater than right now because OPEC just made a seriously drastic move. They cut oil production in the middle of a global oil shortage and a time of record-high inflation.
What’s Happening Now?
Now, if you were a bit confused up until now, that’s alright. The global oil trade is extremely complicated and nuanced and every country that produces oil is constantly jockeying to manipulate the price of oil to their favor and to gain more of the global market share.
With that being said, OPEC, which is basically led by Saudi Arabia, just made a power move. By cutting back their production of oil by 2 million barrels daily, they’ve essentially guaranteed that the global price of oil is going to go way up. Think about your economics class. When supply goes down, price goes up. Simple.
Now, why would they do such a thing? Well, certain U.S. officials believe that OPEC is in support of Russia. And that, by driving up the price of oil, they’re supporting the Russian economy because the Russian economy thrives with high oil prices.
However, Saudi Arabian officials have maintained that this is not the case. Saudi Arabia has said that they’re cutting production of oil in preparation for the global recession that most economists believe we’re headed towards. Yeah, in case you haven’t heard, the U.S. economy is almost certainly going to go into a recession within the next year and the global economy is going to take a hit too.
So, because of all this (and, especially, because the U.S. is the biggest consumer of oil in the world), Saudi Arabia claims that they’re cutting back oil production in order to prepare for the massive drop in demand that they’re anticipating. And that certainly makes sense.
Is it just a happy coincidence for Saudi Arabia that their oil production cuts are helping their friends in Russia? Maybe. Or maybe not. Either way, these production cuts have had a serious impact on the price of oil. And they’ve continued to drive already-high prices even higher.
This is just one more thing to pile onto an already crazy global oil economy. There was a pandemic that destroyed the demand for oil temporarily, there was a deep freeze in Texas in 2021 that shut down oil refineries all across the state, last year’s winter was horrible for European oil production, and then Russia invaded Ukraine and suddenly their entire supply of oil is off-limits.
Luckily, the United States has what’s called the Strategic Petroleum Reserve. A massive store of petroleum that’ll get us through times like this, right? Well, let’s hope so.
Reserves Are Drying Up
So, after that 1973 gas crisis that I mentioned before, the U.S. government decided that they would create the Strategic Petroleum Reserve in case anything like that ever happened again. Essentially, it’s just a massive reserve that usually has between 600 million and 700 million barrels in case of emergency.
And, it seems that the U.S may have underestimated the magnitude of the emergency in this case because the Strategic Petroleum Reserve has fallen to its lowest level since 1984. On top of that, the U.S has only 25 days left of diesel supply and the global demand for oil is still strong as the global economy attempts to restart after the pandemic.
So, all of this is essentially pointing to the fact that we could be headed toward a global energy shortage.
How Will This Affect You?
Now, first of all, what’s the U.S. government planning to do about all this? Well, there isn’t much that they can do. They passed the NOPEC Bill, which gives them the option to sue OPEC for manipulating prices. But, OPEC usually just does what it wants when it wants, and that bill isn’t going to do much.
Biden also announced that they’d be releasing more oil from reserves, which is going to drop the price of oil for a very short time but won’t have any sort of lasting effect. And then the government wants to encourage more domestic production of oil. But, that’s going to take a long time to catch up with our current shortage.
So, all in all, we’re pretty much screwed and most of us are just going to have to deal with fuel prices going to the Moon. And that’s going to be due to what’s called cost-push inflation, which is when consumers are forced to make up for the increases in the cost of wages or raw materials in an industry. So, prepare for higher gas prices. And also for higher inflation. And also for higher interest rates.
Now, here’s where I get to the actual advice part of this article. Essentially, now’s a bad time to spend money on anything. Right now, you should be saving every dollar that you can because gas prices are high (which means you’ll be spending too much at the pump), inflation is high (which means your dollars don’t go as far), and interest rates are high (which means that borrowing is extremely expensive).
Now is the time to build up your savings. And, if you’re looking to invest some of those savings, now might just be a great time to get into renewable energy. This global oil shortage will surely rile people up behind renewable energy. They’re going to say, “Well, if we can’t rely on gas, then we need to start turning toward other forms of energy.”
People are going to buy more electric cars, businesses are going to turn to solar, and those electric and solar industries may actually benefit from this global oil crisis. So, if you’re looking to invest, I’d say that there’s a real opportunity here to make some money on the rise of renewables. Plus, these renewables are cleaner and you’ll be helping the environment by investing in them.