What if the Price of Oil Went to $200?

The market will keep demand equal to supply, as it has for 250 years. But if supply falls, the price of oil will increase to reduce demand. The whole question of peak oil boils down to one not-so-easy question: How high will prices go?

In August 2005, Matthew R. Simmons, chairman of an energy investment banking firm in Houston and author of a book about peak oil, bet $5,000 that oil would average $200 a barrel in 2010. A recent book on peak oil is entitled The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel. What would happen if they are right?

In 1980 the price went to $100 (in 2007 dollars), but back then, the world was using almost twice as much oil per dollar of income, so a $100 price then was almost as hard to take as a $200 price now. At $200 per barrel today, the United States would spend just over 14 percent of GDP on energy, instead of just under 14 percent, as in 1980. But gasoline would still cost less in the United States than it does now in some European countries. If the oil price suddenly shot up to $200, it would probably cause a world recession, as it did before. But as before, economic growth would soon resume.