In fall of 1973, OPEC issued an oil embargo on the U.S. for supporting Israel in the Yom Kippur war. The price of oil went from about $20/barrel to over $50/barrel (in 2008 dollars). Gasoline prices also increased sharply. Gas was rationed, and gas stations often ran out of gasoline entirely. Long lines formed at gas stations. Wikipedia on the 1973 oil crisis.
When the oil embargo ended in spring of 1974, oil prices dropped only modestly. Gasoline became available, but prices remained almost as high as before. Higher prices prevailed until a second oil crisis in 1979. What caused this second crisis? It was caused by the Iranian Revolution, when the Ayatollahs took control of Iran. Oil prices shot up to about $100/barrel (in 2008 dollars). Prices returned to approximately the same price level as before the 1973 oil crisis by the early 1980′s, due to an increase in oil production outside of the Middle East.
Fast forward to today. Iran is working to obtain nuclear weapons. The U.S. and Israel are working to prevent Iran from making a nuke. Iran is threatening to block the Strait of Hormuz, in order to block oil shipments from that region. The U.S. is increasing its sanctions. Israel is threatening a military strike. The situation could easily become worse than the 1973 Yom Kippur war, and worse than the overthrow of the Iranian Shah by the Ayatollahs in 1979.
How high could gasoline prices go? Zfacts.com has an interesting analysis of historical oil prices versus gasoline prices. Since the mid 1980′s (when gas was about $2/gallon), the price of a gallon of gasoline has been about the same as the price of a gallon (not a barrel) of crude oil — plus one dollar. There are 42 gallons in a barrel of crude oil.
Price of oil per barrel divided by 42 = price of oil per gallon
Price of oil per gallon + $1.00 = estimated price of gasoline
For every $42.00 increase or decrease in the price of oil, the price of gas goes up or down by about $1.00, as a rough estimate.
|Oil Price||Gas Price|
|$ 84.00||$ 3.00|
Some additional factors can cause the gas price to go above the price in this chart by a fraction of a dollar. But the chart gives an historically-accurate estimate of the price of gasoline relative to the price of oil. Currently (mid March 2012), oil prices are about $105 per barrel and gasoline national average price is about $3.80; one month ago it was about $3.50 (Fuel Gauge Report).
If oil doubles in price, gasoline will double in price. If oil triples in price, so will gasoline. And that estimate is at a minimum. On some occasions, the price of gasoline has been higher than the above formula would indicate, but never substantially lower (since the 80′s).
Gas prices could soon double or triple to $7 – $10 per gallon. Some people worry that the price would go even higher. Fear and uncertainty, resulting from military action against Iran and possible retaliation by Iran, could drive oil and gas prices higher than mere supply and demand would cause.
What can we do to prepare for this possible economic disaster? Unfortunately, not much. Storing gasoline is a very bad idea. It would be dangerous and foolish to store lots of gasoline in your garage or a shed.
You could buy an all electric car, but that would be prohibitively expensive for most person. You could ride a bicycle to work, but that’s not practical for most persons. You could work closer to home, or at home, but most persons cannot easily change where they work. You could grow your own vegetable oil, and convert it to biodiesel, and then buy a biodiesel car that would…. OK, there are no easy solutions.
The only practical solutions are limited in usefulness. Carpool to work. Plan your shopping, so that you shop less often and get more done. Stay home more often; go out less often. If your workplace is not far from your home, you might be able to cut your driving and gas use in half by more careful planning of trips for shopping and entertainment.
Also, buy a locking gasoline cap for your car, so that it is harder for someone to steal your fuel. When gas prices go up, so does the theft of gas.