Weak Energy Demand May Signal a Much Bigger Economic Problem
With the recent closure of the Strait of Hormuz, many expected oil prices to spike and stay high. Instead, they have barely budged. The latest spike in prices is a mini spike. If these oil prices were adjusted for inflation, the spikes in the past would appear even higher. Figure 1. Weekly average oil prices for West Texas Intermediate oil in a chart provided by EIA, with Iran conflict price…
The recent Strait of Hormuz closure has not led to a significant rise in oil prices, despite expectations. Oil prices are only experiencing a minor spike, which appears even higher when adjusted for inflation. Throughout history, low energy affordability has led to financial crises, wars, and economic collapses. Analyzing energy data since 1820, periods with low demand have repeatedly resulted in negative outcomes.
This analysis suggests that the current economic situation may lead to another period of low energy demand. High demand for oil products, such as in the 1950s, 1960s, and 1970s, was characterized by increasing car sales, affordable housing, and economic growth. In contrast, today's situation sees many young people struggling to find well-paying jobs, unable to afford homes, and relying on parents after finishing school.
The number of new homes sold has plummeted, signaling financial difficulties among young people. The income disparity between the top 10% and the bottom 90% has widened over the years, making it difficult for the latter to maintain high commodity prices. If the current economic trends continue, with low energy demand, the world economy could face similar issues as during past low energy consumption periods, such as financial crashes, wars, and government collapses.
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