On February 29th 2011, the Brent price of crude oil soared past $100 per barrel as a wave of political strife swept through Tunisia, Egypt and then Libya. This rise marked the highest level for crude prices ever, barring the recent 2008 oil rush. A reason widely cited by newswires for the swift rise was that a healthy chunk of widely sought high-quality light sweet crude is concentrated in the MENA region (Middle East North Africa). Political and economic gridlock following the conflicts in that region had slowed production.

With the MENA dynasties now beginning to topple, one would expect lower oil prices as these economies stabilize. Interestingly enough, oil prices moved slightly higher on the day Colonel Muammar Gaddafi was announced dead.

Such price action paints a dire scenario given high gasoline prices are already hitting many consumers through rising inflation. But it clearly illustrates that beyond near-term economic weakness, we face continually rising crude prices unless there is a tectonic shift in consumer attitudes.

There are two major reasons why a betting on a sustainable oil price drop might be futile. First, there has been lagging investment in the key MENA region and spare production capacity has shrunk to near record lows. This is a key difference between now and the 1970s/1980s oil spike during the Yom Kippur war and Iranian revolution, which eventually spurred massive production increases. Second, emerging markets (EM) are becoming a much bigger force to the oil story as automobile adoption rises. Chinese car ownership per capita is only 6% of U.S. levels, and this is bound to explode upwards in the coming years. Unless electric or natural gas vehicles take off, EM consumers will have to compete with the developed world for the earth’s finite oil reserves.