Seeking silver linings to the end of cheap oil - Metro US

Seeking silver linings to the end of cheap oil

Jeff Rubin is a prominent economist with a sharp eye for oil prices. When the former chief economist at CIBC World Markets thinks ahead to 2012, he sees big changes.

“Forget the avocado salad in February in a world of $200 a barrel oil,” he warns.

Rubin — who’ll be taking part in a high-profile business forum at this weekend’s Green Living Show in Toronto — is the author of Why Your World is About to Get a Whole Lot Smaller, an intriguing look at life in a world of declining oil supply.

“I believe in the power of prices,” Rubin says. “I believe that triple-digit oil prices are going to change the way we live, and change the way our economy is structured. And while undoubtedly we’ll be making a lot of sacrifices from our very oil- and energy-dependent former lifestyle, we just might find that there’s more than a few silver linings in these changes.”

Oil prices of two hundred dollars a barrel will mean seven dollars for a gallon for gasoline, and Rubin predicts our lives will become more localized, with sharp reductions on international air travel.

“These flight disruptions being caused now by the volcano in Iceland — this is exactly the way it’s going to be when oil is $200 a barrel,” he notes. “There aren’t going to be as many people flying — or airlines. Flying is going to go back to what it was in the 1960s and ’70s: A pretty expensive thing that you only do for pretty special occasions. So, instead of going to Machu Picchu or the Serengeti, we’ll be going to Algonquin Park.”

Rubin also foresees huge changes in what Canadians import — and from where.

“We’re going to eventually go back to diets far more similar to our parents’,” he says. “When I was a kid growing up in Toronto, if you wanted blueberries and raspberries in January, you went to the canned goods section. We’re not necessarily going to do this to save the planet, but simply because with the transport costs associated with moving and refrigerating food around the world, we’re not going to be eating lamb chops from New Zealand.”

The good news? Canada’s manufacturing and agricultural sectors should rebound handsomely as imported goods become prohibitively expensive. And the Canadian dollar should strengthen, as well.

“Whether we want it to or not, the Canadian dollar has become a petro currency. And the more that the tar sands becomes tomorrow’s Saudi Arabia for U.S. oil consumers, the more we’re going to be a petro currency. That’s going to take the Canadian dollar to places she’s never been. If oil goes to $200 a barrel, and we start pulling 4-million barrels of oil a day out of the tar sands, the Canadian dollar is going to be at a 20 per cent premium against the U.S. currency.”

So even though prices will be driven up, the stronger loonie should offer a hedge against inflation.

“It will help,” he says. “It will reduce the price of imports, but I suspect we won’t be importing that much.”

Rubin remains optimistic, despite the magnitude of the changes he’s predicting.

“We’re going to be home a lot more. We’re going to become more aware of our own local environment. I’m not going to pretend that we’re not going to have to make sacrifices, but I’m just saying that it doesn’t have to be 2012: Apocalypse Now.”

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