An oil supply crunch may be looming

An oil pumping unit sits in a farm field near Okawville, Ill.

TEXT OF INTERVIEW

Stacey Vanek-Smith: The price of oil has been climbing in recent weeks, topping $80 a barrel this morning. That's because investors are feeling bullish about global economic growth. But a new report out this week? Not so bullish. A group called Global Witness spent two years preparing the report called "Heads in the Sand." It says oil supplies are drying up fast. Simon Taylor is a founding director at Global Witness. Simon, thanks for joining us.

Simon Taylor: It's a pleasure.

Vanek-Smith: So Simon, tell me what did you find in the report?

Taylor: Basically the evidence says that we are very close to a sort of maximum output of available oil onto the market. And that this has extremely big geopolitical consequences, and governments have neither acknowledged this, and neither have they seemingly put together any kind of policies that would seek to move us away from the potential crunch of having insufficient oil coming onto the market.

Vanek-Smith: What will that mean for the price of oil?

Taylor: I think when we had $147 last year, there wasn't a shortage. We were very close to not having enough, but we still had enough. So imagine a world without enough to go around. We're going to have further price spikes, which will have very serious economic consequences. But when there's not enough to go around, we start to enter into the area of essential services that cannot do without oil. We're not just talking about not going to Florida for your summer holidays. We're talking about how do you move food around, how do you grow food, how do you conduct trade in the normal way? We are completely dependent on oil. And that's really where the crunch comes in and has a big effect.

Vanek-Smith: And what are some of the geopolitical consequences of an oil shortage?

Taylor: Well I think we have to ask the question: Is a large, industrialized part of the world prepared to do without? Or will a large, industrialized part of the world say, "Well, if we don't make sure we have it, somebody else will and we will be doing without." And these are questions. I mean, I don't want to be a doom monger, but when you have such large potential differences between what is absolutely essential and required, and no choice for alternatives, then what does happen? I mean these are very interesting and quite unpleasant consequences to think about.

Vanek-Smith: Simon Taylor is the director for Global Witness. They're new report is called "Heads in the Sand." Simon, thank you.

Taylor: Thank you very much for having me.

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