Ready for $262/barrel oil?

Even though I can't stand George Soros and his leftist agenda for America, his success as an investor is beyond dispute. His successes today are partly based on his ability to watch and determine which way markets will move. It has earned him billions. Now, according to a few of his economic predictions, the world is in for a rough ride ahead. But before I share the relating article, allow me to point out some worries I have.

For starters, a lot of what is happening in the world is no doubtly the result of secret combinations. Now, I don't have respect for the left wing attacks on the oil industry because they tend to go hand in hand with fixes that would end free-market economies and increase the power of government over its citizenry. However, that doesn't mean I think the oil companies are innocent because I don't.

The greed in our world is approaching epidemic proportions, and is even, dare I say - pandemic. Almost every person on this earth is obsessed with the accumulation of wealth. This is nothing new, of course, but the tools available today allow wealth to be generated more quickly than ever before which breeds a new kind of greed - the "I'll do whatever it takes to get on top" kind. This is dangerous. It's always been around in some form, but only over the past generation or so have we started removing responsibility from our culture in a way that makes this kind of greed especially dangerous. We have no morals, the relationship between right and wrong is scoffed at, our politicians promote a loose lifestyle without restrictions, and we allow our children to be raised in homes where money is the first and only priority. To think that the ideas so cherished by this generation intended to "free your mind" will escape greed is intellectually negligent.

Because of our love of money, waste and responsibility-free living, we will bring one of the below scenarios upon our own heads. So many today think it's ok to cheat to get ahead, that we don't notice when others do it to us. However, whenone cheats, one doesn't learn. When one doesn't learn, there will come a time when that person's lack of knowledge will come back to bite them in the rear. Here are those situations, paraphrased:

Two of the world's most successful investors say oil will be in short supply in the coming months.

By Nelson Schwartz, FORTUNE senior writer

January 27, 2006: 4:40 PM EST

DAVOS, Switzerland (FORTUNE) - Be afraid. Be very afraid.

That's the message from two of the world's most successful investors on the topic of high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined six scenarios that could take oil up to a downright terrifying $262 a barrel.

The other, billionaire investor George Soros, wouldn't make any specific predictions about prices. But as a legendary commodities player, it's worth paying heed to the words of the man who once took on the Bank of England -- and won. "I'm very worried about the supply-demand balance, which is very tight," Soros says.

Soros pointed to the regime in Iran, which is heading towards a confrontation with the West over its nuclear power program and doesn't show any signs of compromising. "Iran is on a collision course and I have a difficulty seeing how such a collision can be avoided," he says.

Doomsdays 1 through 6

To come up with some likely scenarios in the event of an international crisis, his team performed what's known as a regression analysis, extrapolating the numbers from past oil shocks and then using them to calculate what might happen when the supply from an oil-producing country was cut off in six different situations. The fall of the House of Saud seems the most far-fetched of the six possibilities, and it's the one that generates that $262 a barrel.

More realistic -- and therefore more chilling -- would be the scenario where Iran declares an oil embargo a la OPEC in 1973, which Browder thinks could cause oil to double to $131 a barrel. Other outcomes include an embargo by Venezuelan strongman Hugo Chavez ($111 a barrel), civil war in Nigeria ($98 a barrel), unrest and violence in Algeria ($79 a barrel) and major attacks on infrastructure by the insurgency in Iraq ($88 a barrel).

It's clear that there is very, very little wiggle room, and that most consumers, including those in the United States, have acceded so far to the new reality of $60 or even $70 oil.

Although there are long-term answers like ethanol, what's needed is a crash conservation effort in the United States. This doesn't have to be command-and-control style. Moral suasion counts for a lot, and if the president suggested staying home with family every other Sunday or otherwise cutting back on unnecessary drives, he could please the family values crowd while also changing the psychology of the oil market by showing that the U.S. government is serious about easing any potential bottlenecks.

UPDATE (1-30-06): EXXON MAKES BIGGEST PROFIT IN AMERICAN HISTORY