On the first trading day of 2008, oil prices reached exactly $100 a barrel. Even adjusted for inflation, this is far higher than the highest prices reached in the 70s and early 80s.

This time around, not only are we seeing higher prices, but there is a growing awareness that whereas the oil shocks of the 70s and early 80s were based on political factors like the Arab oil embargo and the Iranian revolution in 1979, today’s oil shock is due to a systemic imbalance between supply and demand.

In other words, supply is no longer keeping up with demand. Based on the inevitable law of supply and demand, therefore, prices must rise. And rise they have!

In the last ten years, oil has risen from $10 a barrel to $100 a barrel, a 900 percent increase. Gasoline prices have tripled in the last ten years and are set to hit new records this spring. Natural gas prices have risen 400 percent over the last ten years and even coal – the dirtiest of the fossil fuels – has risen to new highs on the international markets due to supply constraints. Last, uranium spot market prices have risen even more, from $7 per pound in 1999 to $138 per pound last year before coming back down to about $90 per pound now.

The conclusion should be clear: we are living in an era of dramatically rising energy costs. Fortunately, our economy is less energy intensive than it used to be, which means that we require less energy for every dollar of economic output. This means that higher prices don’t impact us quite as much as they used to.

The bad news is that it is quite likely that oil, gas and all energy prices will continue their dramatic climb throughout 2008 and we may even see shortages.

By now, “peak oil” has joined “climate change” as a major topic of debate. Climate change is widely recognized as a major problem that the world’s economies must grapple with and many are optimistic that with a changing of the guard in the White House the US will join every other developed nation by ratifying the United Nation’s Kyoto Protocol.

Peak oil, however, is not as well-known by the public or by policymakers. There is good reason to believe that it should in fact be literally at the top of the agenda for all policymakers. A growing minority of oil geologists, investors, and economists are realizing that the world is very likely at or near a peak in global oil production. The US Army Corps of Engineers stated in a 2005 report examining energy security for the US Army: “We are at or near a peak in global oil production.”

A German non-profit group, Energy Watch, published a report in 2007 concluding that global oil production peaked in 2006. T. Boone Pickens, the legendary investor, has been stating for some time that 2006 was the global peak.

Even if these groups and individuals are wrong about the exact timing of the peak (which we won’t know with certainty for a few years), there is yet another very disturbing trend we must take into account. The global peak in oil production isn’t really the important issue – the important issue is the amount of oil available for export to nations that don’t produce enough for their own needs.

The US peaked in oil production in 1970 and we now import two-thirds of the oil we use. Almost every other developed nation is also a net importer of oil. This in itself makes the US highly vulnerable to oil shocks, as we have witnessed many times. The larger problem is that oil-producing nations – most notably OPEC nations like Saudi Arabia, Iran and others like Russia – are growing fast themselves and are using more and more of the oil they produce. “Political peak oil” is the issue that should be at the top of the agenda for US policymakers from the federal to the local level.

A recent in-depth analysis of Iran’s oil production found it will probably decline to zero exports by 2013! Mexico, the second largest exporter of oil to the US (after Canada) is now projecting a 30 percent decline in total production over the next ten years, after witnessing a 25 percent decline at its largest oil field, Cantarell, in 2006.

The decline in available exports may well lead to dramatically increased prices far beyond the $100 a barrel we witnessed on January 2nd. What would oil at $200 a barrel do to us?

Obviously, higher oil prices will translate into much higher consumer prices for just about everything from air travel to diapers, because almost everything we do and consume requires fossil fuel inputs.

But a much scarier scenario sees real shortages occurring, not just price increases. As a rich nation that pays a relatively small amount of total income for energy and food, much higher prices will be very painful for us but perhaps not catastrophic. Shortages, however, could be catastrophic in terms of the effect on foreign policy through additional oil wars and the effect on the normal functioning of our economies both large and small.

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