Katrina

This morning Katrina smashed into the Louisiana coast. If you think that does not impact you, think again.

For the first time ever, the price of a barrel of crude oil touched $70 US. Light, sweet crude for October delivery on the New York Mercantile Exchange jumped by more than $4.50 in Singapore to hit $70.80. Gasoline and heating oil futures surged about 12% overnight.

It is feared that Katrina could tear up much of the oil infrastructure in the Gulf of Mexico, which produces 1.5 million barrels a day – a whopping 25% of the entire American domestic output. There is the potential for crippling damage to oil platforms in the Gulf, which could affect production levels for years.

“If this thing knocks out significant quantities of refining capacity, we’re going to be in deep, dark trouble,” an energy executive told CNN overnight. Of course, the Katrina disaster is being layered on a situation which had seen oil hit $60 US, prompting fears that global economic growth could be slowed in a major way, accompanied by a resurgence in inflation as energy prices hit unheard-of levels.

In Canada the result has been a jump in the value of the loonie, since Canada is seen as a resource-rich country and our dollar a petro-currency. But this is exactly what we do not need, as a higher dollar makes our crucial exports more expensive, hurting sales, and ending up costing valuable manufacturing jobs. At the same time, the highest gasoline and home heating costs in history will certainly chew into household budgets and make people think twice about doing those things that the economy now depends on – buying cares, houses and home theatres.

Oil prices are now higher in Canada than during the worst of the 1980s energy crisis, as Patrick Brethour points out in an article in today’s Globe and Mail. It is, he says, “a danger zone that ratchets up the peril of inflation and recession.”

Sure, Katrina will have an immediate impact in the next few hours, and crude oil prices could surge further, and then fall back as the winds recede. But the reality is, energy costs are reaching a crisis state all on their own, and this monster storm is just another nail in the coffin of an economy so dependent on fossil fuels.

So, it is beyond time for leadership on this issue. The Canadian economy, so dependant on the twin engines of exports and consumer spending, could be wounded rapidly. We need strong statements from the federal government on measures it will take, such as reducing gas taxes immediately to offset the impact on Canadian families. The prime minister has a role in making this happen, just as the minister of finance needs to be talking the dollar down, as only he can do. Apart from that, this country needs to reduce its oil dependence, and become a leader in alternative energy sources. Eight decades ago we were leading the world, for example, in clean, safe and plentiful hydro-electric generation. Today we can barely cope with the demand. In a country with constant winds, ever-flowing waters and the world’s leading technologies, we could – and must – break the bond to oil, while continuing to mine that resource as a golden export.

The events unfolding now ask for a leader’s response. Who will answer?