Looming oil shock means globalization's end: author

VANCOUVER, British Columbia Tue May 26, 2009 1:03pm EDT

VANCOUVER, British Columbia (Reuters) - Triple-digit oil prices are once again around the corner and will sound the death knell for globalization, an audacious but sometimes prescient Canadian economist predicts in a new book.

Jeff Rubin, who until two months ago was the chief economist and strategist at investment bank CIBC World Markets, argues that the days of cheap oil are over, making the global economy unsustainable and turning back the clock on the way we live.

"Everything we have taken for granted is about to change," Rubin said in an interview with Reuters a few days after the publication of his book "Why your world is about to get a whole lot smaller: Oil and the end of globalization".

"Our cars, our homes, our whole world has been getting bigger in the cheap-oil era. Now it is about to get smaller, And, greener. Much greener," Rubin said.

In his book, Rubin argues that an ever-decreasing amount of supply but ongoing insatiable demand for oil will propel prices to highs not yet seen.

"Within 12 months of an economic recovery I believe we will be encountering at least triple-digit oil prices. Certainly in the coming business cycle we will take out $147 a barrel oil and post new highs," he said.

"We're running out of cheap oil. We are scraping the bottom of the barrel. Sure there is 165 billion barrels of oil underneath the Canadian oil sands but you're never going to be able to put that in your car unless you're paying $7 a gallon."

On Tuesday, U.S. oil futures were trading at around $60 a barrel, roughly double the lows reached in December but nearly 60 percent below the $147 a barrel peak hit last July.

None of the analysts surveyed by Reuters this month see triple-digit oil prices on the horizon although they did raise their consensus forecast for the second straight month. Analysts' median forecast for Brent crude oil was $52.50 a barrel this year, rising to $67 in 2010 and $80 in 2011.

RECOVERY FOR LOCAL MANUFACTURERS

Rubin, who spent 20 years at the Canadian Imperial Bank of Commerce (CM.TO) unit, said he quit to publish his book after the Bay Street firm didn't want to be associated with it. But throughout his career he never shied away from controversial predictions.

Sometimes wrong, his bold calls on oil prices have, however, oftentimes hit the mark. In 2000 few believed him when he said oil would hit $50 a barrel by 2005. Similarly many doubted him in 2005 when he said oil would hit $100 within five years.

Rubin, unlike most economists, argues sky-high oil prices are to blame for the U.S. recession, not the collapse of the housing market.

"The epicenter of the U.S. recession is not housing starts... Housing starts have been declining for quite some time. The epicenter of the U.S. recession is the auto industry and that is not about subprime mortgages. That's about $4 a gallon gas last Memorial Day weekend," he said.

"Last Memorial Day weekend, your average American was paying more to fill his tank than to fill his family's stomachs."

At oil prices of $100 a barrel or more it won't make sense to have a factory in one part of the world producing goods for another part of the world, Rubin argues. Any savings on low wages will be wiped out by the costly bunker fuel needed to transport the goods to market.

Instead, globalization will be replaced by local economies, where people eat and purchase goods made nearby and trade between regional neighbors increases.

"The 40-year trend from the goods sector to the services sector is about to turn....Those long-lost factory jobs that we thought were lost forever will come back. All those people working in Starbucks all of a sudden will have to learn to make things," he said.

Asked about his plans for the future, Rubin is vague, saying only that he might consider writing another book.

One thing he is certain about, though, is that he is done with investment banking.

"I'm not going back to Bay Street, that's for sure. Been there, done that."

(Additional reporting by Louise Egan in Ottawa; Editing by Peter Galloway)