Why the end of cheap oil could spell death to suburbia

The whole US suburban lifestyle has been built around the car, and the central dogma that oil will remain cheap forever. So what would $100-a-barrel oil mean for the American dream?

Is America's middle class getting stuck up a suburban cul-de-sac, surrounded by for quick sale' signs, with a rusting commuter tank' in the drive without a fill-up? Not quite, at least not yet, thanks to a robust global economy.

True suburban property prices are falling, foreclosures and distressed selling are on a sharp rise - albeit from low bases - and there are rising concerns about petrol and heating costs. But the suburban beat goes on. At most, 10% of suburban households face incipient crisis in the short-term.

The American middle class consumer though indebted still travels to the fry pits and big box retail stores lining the eight lane highways. And they are still spending money with that good old up tempo American resilience to jolts from the outside world. In spite of the fact that they can no longer use their homes as ATM machines by progressively re-mortgaging when property prices were going up.

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Sub-prime crisis or not, the Fed will rescue the system and the American way of life will go on as always, with a few temporary tweaks and household budgetary adjustments... won't it? After all, didn't George Bush Snr. forcefully declare at the Earth Summit in 1992 that "the American way of life is not negotiable." And the centrepiece of that way of life is suburbia and has been for 60 years.

It spawned suburban sprawl and the drive-in utopia' and enabled millions of people to live a long car drive from their work. The ultimate American story has been and is played out in the suburbs to the delight of the

Simpsons scriptwriters and makers of dark movies such as David Lynch.

So is American suburbia screwed? Does it represent, in the words of James Howard Kunstler, admittedly a car hating, new Urbanite iconoclast, "the greatest misallocation of resources in the history of the world''?

Will much of American suburbia become the "new slums" peopled by the "new and impoverished proletariat", while others scramble to escape? Are we soon going to be talking about America's "former middle class"? To quote Sam Goldwyn, it's a "definite maybe."

How come? At its root, there's a simple unvarnished fact. And it's not about over-stretched borrowers. It's a crude and brutal fact that the cheap oil fiesta' is over. And what exactly is the problem? It's this. Americans remain oblivious to the red light on the fuel gauge, and the long and short of it is that the whole suburban phenomenon was and is built around the car, and the central dogma that oil will remain abundant and cheap for ever and anon. Upon that is predicated the system that has sustained the daily lives of the vast bulk of Americans - the American dream' - since the late 1940s.

Of course, your clue is as good as ours, but we don't see the oil price collapsing, unless China and India go ex-growth. In addition, the chances of the Gulf stabilising into a haven of harmony, sweetness and light and alternative energy sources for motor vehicles - such as ethanol, hydrogen, or chicken manure - becoming mainstream in short order appear remote. Only the elite can afford a Tesla. (The Tesla is a new high performance electric sports car 0-60 in 4 seconds - modelled on the Lotus Elise and retailing for around £48,000).

Instead, we tend to go with those who see the free market price oil price more likely to hit $100 per barrel than $30 and in any case to stay at $70 and above given geopolitics and demand pressures. We are seeing the growth of bi-lateral or multi-lateral neo-mercantilist oil supply deals between the likes of Russia and China, Angola and Nigeria and China, India and Russia, and Venezuela with various consumers. This is leading to shortfalls of supplies available for the rest of the world via the NYMEX and other bourses.

So if the world is indeed heading down the arc of oil depletion, and if geopolitics and neo-mercantilism bring significant insecurities into US oil supplies, the American suburban lifestyle built round the car will start to destabilise and wobble with deep and wide ramifications.

Just ponder this... the average Caesar salad travels 1,500 miles to the supermarket shelf. And those 12,000 mile supply chains of cheap, if increasingly tainted', Chinese goods will begin to look uneconomic with a $100 per barrel oil price. Indeed at anything much over $70. Moreover, US agriculture, currently being reshaped by the oil-intensive ethanol-from-crops movement, has been consolidated in a very small fraction of the population, and relies on pumping oil-based products fertilisers and pesticides - into the soil to yield food crops.

Maybe, to misquote and modify Randy Newman: "if he were alive today, Thomas Jefferson would be rotating in his grave." Assuming that in some degree or other, the era of American suburbia is ending, at a speed yet to be determined, America will be forced to recalibrate itself to some degree. This could yield a lot of opportunities amidst the turmoil. For example, in general terms, the local' supplier will bulk larger vs the distant'. There will a made here' and still made here' placards reflecting more home grown businesses, and not just restaurants and beauty parlours but textile and auto-parts manufacturers among others. More small towns will be developed and built.

These will be surrounded by farms supplying short haul local markets with fresh produce. There may be widespread strong-arming into organics.'

In the cities, expansion will be up' rather than out.' Retail will have to be re-thought to eliminate those long supply lines. Smart' grids of distributed electricity systems will emerge. Massive or otherwise, there'll be a downscaling of America. The current system is unsustainable.

While its crack-up' may not yield a Jeffersonian utopia, it will yield a lot more local living' with all that that implies. You can be sure American ingenuity and drive will be up to the task.