It looks like global oil production peaked in 2005-06, and we're headed down the long slope toward oblivion. We're staring down the barrel of an increase in oil prices. What does this mean for me and for you?

Gasoline costs about $4/gallon ($1.10 per liter) here at the moment. Historically, that's not a tremendous price; it's comparable, inflation-adjusted, to prices during the oil crisis in the 1970s. Many countries already have prices around $2/liter. A quick back-of-the-napkin calculation shows that it would have to hit $100/gallon or more to put a profound burden on my budget. If you live farther from work, though, things quickly get hairy. Let's say you live 20 miles from work (burning about 1.5 gallons per day), and you can make $150 net in an 8-hour workday. If prices leapt to $10/gallon, you would be spending 10% of your income just to get to work each day.

While gas is the most obvious cost, though, the price of oil has much more profound effects.

First and foremost, modern agriculture runs on oil. Every bit of it, from the seeds being planted to the plastic bags you use to bring it home from the supermarket, depends on oil. An increase in per-barrel prices implies a consequent increase in food prices. This is a HUGE deal, even if you have plenty of money to spend on food: the vast majority of the world's population won't be able to afford it. This means famine, war, millions (or billions) of refugees, and a whole lot of trouble for everyone. If we wanted to go back to pre-industrial farming methods, then the world would only be able to support about 1 billion people - and that's before global climate change kicks in.

Speaking of which! You don't expect oil to just disappear, do you? No, we're going to start making it out of coal and tar sands. Unfortunately, this has the consequent effect of producing a ridiculous amount of air pollution and greenhouse gases. Mining tar sands is the ultimate faustian bargain; for a few more years of oil, we basically scorch the planet.

What else? We can't use corn-based ethanol as fuel. It takes more oil to produce that ethanol than you'd save. The whole thing is a big boondoggle for the corn industry. Electric cars would be cool, but we don't have the infrastructure for them, and you'd better believe Afghanistan's going to turn into an unholy hell of war when everyone goes after its lithium deposits.

Mass transit? Sure, that's the future of transportation in Europe. Here in the US, though, the vast majority of the country's not nearly dense enough to support mass transit without heavy subsidies. What's that mean? No more house in the suburbs; you need to move to the city.

So what are you planning to do when gas hits $10/gallon? It's not going to happen today or tomorrow, but in 3-5 years, so plan accordingly!