Even though the world is not the same as it was during the 1970’s, our experience with the 1974 oil embargo and the Iranian revolution gives a rough guide to what might happen during a supply-demand imbalance later this year. In 1980, oil peaked at the inflation-adjusted equivalent of $95 a barrel or some $4.50 per gallon. Demand for gasoline in North America is notoriously inelastic and given the state of alternative forms of transportation, $4-5 per gallon (roughly $5,000 per year in gasoline costs for the average vehicle) may not dampen demand that much. Europeans have been paying a heavily taxed $5-6 per gallon for years.
Janice Taylor fills up the gas tank of her Ford Navigator once a week. The Navigator’s tank is capable of holding well over 40 gallons, and with gas at even the cheaper outlets running more than $2 a gallon, Taylor kisses a whopping pile of cash goodbye almost every time she visits the pump.
“I mean, my God, that’s a $100 bill every time I fill up,” Taylor shouts. “There ain’t no way I can afford to take my car to work anymore with prices like this.”
Taylor says lately she and her husband have been sharing the services of his five-year-old Toyota Camry. She says the Navigator is probably on its way to a trade-in within the year if gas prices don’t improve. She adds that she’s only owned it about seven months.