Sounds like a dumb question doesn’t it? But take a moment and think about the long term effects of $100 Oil, not the short market gyrations. I know Jim Rogers thinks Oil may go to $150 or even $200, and it might, but what will be its effect on OPEC? With a high oil price all alternatives to oil become viable. Most of the national income comes from exporting oil. They are building massive State Funds that invest the Petro-dollars. These investments should provide returns long after the OPEC country stops exporting Oil. The OPEC countries have decades of oil production left. If oil was consistently above $100 businesses would spend a lot of time and effort researching alternatives. If any alternative is found it could seriously harm the economies of the OPEC countries.

Current major OPEC economies.

  • Saudi Arabia - 75% of budget revenues, 45% of GDP, and 90% of export earnings.
  • Iran - 55% of Budget revenues, 25% of GDP, and 80% of export Earnings
  • Kuwait - 50% of GDP, 90% of Exports
  • UAE - 30% of GDP, 50% of exports (This is after a massive economic diversification project)
  • Venezuela - 50% of budget, 35% of GDP, 80% of Exports.

Note: Not all countries listed, numbers are to the best of my knowledge aka Wikipedia and might not be totally accurate

Alternative to Oil?
The single largest use of Oil is to drive vehicles. Nearly 53% of Petroleum is used to run cars/trucks. Car companies are developing everything from Electric Hybrids to a Semi-Trailer that runs on Natgas(CNG/LNG) and even Biogas. The reason behind this is the growing number of people around the world that want cheaper alternatives to Petroleum. The international association of Natural Gas Vehicles provides the following statistics on cars running on gas.

Country Vehicles Refuelling Stations
Argentina 1,650,000 1,640
Brazil 1,357,239 1410
Pakistan 1,300,000 1230
Italy 410,000 558
India 334,658 321
Iran 292,455 203
USA 146,900 1,340
China 127,100 355

Its not a big step to convert these vehicles to run on biogas or Hydrogen. Yes, you can modify your existing car to run on LPG/UNG/Biomass/Hydrogen and the kits are selling in developing nations for about $1000. Does OPEC really want this catching on? The only way to avoid the widespread adoption of these alternatives is LOWER oil prices.

The second biggest use of Oil is for Plastics, Chemicals and Manmade fibres which is about 10%. With the high price of Oil the race to develop viable alternatives to is on here as well. An example of ingenuity, clear plastic cups made from corn that are CHEAPER than normal plastic cups I found on other online sites, and these are compostable. Personally i am not a big fan of converting food into plastics but you get the point.

Disclosure: I am not invested in any Oil companies, I do own Chesapeake (CHK), I used to own Canadian Natural Resources (CNQ).