$100 for the Oil/How Much for the Frustration?

Everyone's trying to forecast how Americans will react to oil at $104 a barrel. Yeah, yeah, cutting back on gas use, worried financial markets... But the overall mood is a defiant shrug, typified by the president, who told a renewable energy conference today that Americans have to “get off oil,” right after mentioning that he’d shown up in a motorcade of twenty cars. It’s fair to say that with neither a plan nor collective will to change, Americans will stay in oil’s motorcade.

However, while we’re watching ourselves, another possibly very significant conflict is forming in two of the most important oil-producing countries. After years of rising oil prices and escalating nationalist rhetoric, the poor in Venezuela and Iran are not getting what they were promised -- according to two separate but strikingly similar reports. Their reaction to rising prices, and increasing sense of disenfranchisement and disappointment, may ultimately force Americans out of the motorcade.

In Foreign Affairs, Francisco Rodriguez writes a fascinating and thoughtful article about Chavez’s failure to deliver oil money to the poor, despite years of talking and spending.

Rodriguez writes:

[Chavez's] mismanagement of the economy and failure to live up to his pro-poor rhetoric have finally started to catch up with him. With inflation accelerating, basic foodstuffs increasingly scarce, and pervasive chronic failures in the provision of basic public services, Venezuelans are starting to glimpse the consequences of Chávez's economic policies -- and they do not like what they see.

And Jahangir Amuzegar, writing in the Middle Eastern Economic Review, delivers a similar critique of Iran.

The president has failed to deliver oil to the tables of the poor, he writes. “In fact, the unexpected oil bonanza has gone hand-in-hand with virulent and rising inflation, stubborn double-digit unemployment, further recession in the country’s industrial sector, and reportedly larger gaps in domestic income distribution. More troubling still, while oil prices are expected to remain at current high levels, the mid-term economic outlook for Iran presented by international organizations (eg, the IMF) and foreign private sources (eg, the Economist Intelligence Unit) -- show slower GDP growth, higher inflation, and larger unemployment in the next few years.”

Now here’s my question: If rising oil prices are not delivering benefits to people in these countries, what will their reaction be? In the past, both Chavez and Ahmenijhad have delivered nationalism when they couldn’t get their hands on the money. But these articles suggest even that is falling flat, and there’s nothing in the oil market that suggests that prices will start spiraling downward. So what will it be? Will leaders ramp up nationalist rhetoric further, trying to force a U.S. reaction? Will the rhetoric simply push prices higher? Will other power centers in Venezuela and Iran push their presidents toward another strategy, or push them off the stage altogether? Will other producers change their behavior? What is the cost of built-up frustration?

The only certainty is that we’ll pay if we don’t "get off" the angry shrug and come up with short-term and long-term plans to reduce oil consumption.