The price of oil this week is running in the neighborhood of $117 U.S. a barrel.

Iraq is one of the world’s major oil producers.

There is a significant body of opinion in the United States that suggests that Iraq’s oil money should be used to help fund the reconstruction of Iraq and pay for the training of Iraq’s military and its police force. Given that Iraq was invaded by the United States, this seems to me to be a bit of a stretch.

In New Brunswick, the impact of high oil prices manifests itself in different ways. We see it at the gas pump where prices have jumped above the $1.20 a litre mark. We’ll soon be seeing it in the price of electricity and in the price of heating oil.

There are looming impacts for the airline industry and Moncton may feel it. U.S. airlines are struggling for survival. It’s estimated that ticket prices will have to rise by 15% to 20% just to cover the cost of fuel. Delta and Northwest have applied to federal regulators for approval to merge. United Airlines and U.S. Airways are in merger discussions.

U.S. flights are being slashed and equipment retired or sold off to reduce seat capacity. The impact will be increased demand for the remaining seats, a circumstance that will lead to higher prices. By this time next year there could be as many as 20% fewer seats available in the United States, if carriers respond to today’s high oil prices.

That would be the equivalent of shutting down a major carrier like American Airlines, the world’s largest airline, a carrier that operates 4,000 flights a day. Such huge cutbacks in seat capacity would transform the airline industry. There would be fewer flights to and from cities of all sizes. Planes would be fuller but passenger inconvenience would be exaggerated by longer connection times and a reduced number of non-stop flights.

Fully loaded small jets, such as those flown by Air Canada and Continental don’t generate enough money in fares to cover current fuel costs. U.S. airlines have raised prices ten times since December 2007 and several of them are considering an eleventh increase this week. Whatever, the consequence will inevitably be higher prices, reduced service or both for Moncton and other communities across Canada.

Cutbacks in service and higher prices could threaten our leisure/tourist market. It could make it harder to attract meetings and conventions to the Greater Moncton area. Indeed, higher airfares and higher cargo rates could affect every part of our economy that depends on air-service. If we are looking at fewer flights and/or higher airfares, we could be facing a much tougher environment in terms of attracting business investment.

Air travel in the United States has grown at a rate five times greater than population growth since 1978, when former President Ronald Regan introduced his “deregulation” policies that allowed airlines to compete in an open market by setting their own prices and selecting routes without government approval. I don’t know what Canada’s growth rates are for the period but I suspect they are significantly less than the U.S. experience, given the nature of our market and the fact we are effectively served by only two carriers, Air Canada and Westjet.

With today’s unprecedented fuel prices, American airline executives and aviation analysts are warning that only extreme fare increases and dramatic cutbacks in the number of flights offered to the public will enable the industry to cover its 2008 jet fuel bills, projected to be 44% higher than last year’s. We haven’t heard those warnings in Canada but I suspect we are facing the same circumstance.

Oil industry analysts say it could be years before new oil supplies can be tapped, new refineries built or alternatives to petroleum-based fuels are developed and produced in quantities to fuel the airline industry.

This week, the head of OPEC, Algerian Minister of Oil, Chakib Khelil told reporters that oil is likely headed to $200 a barrel and there is nothing that he or his colleagues in the Middle East can do about it. He may be a pessimist but the reality is that chances of a major and sustaining fall-off in prices is most unlikely given the relentless demand for oil from China, India and the world’s other fast growing economies.

The world of low cost airfares may be past. More importantly, the world of much higher priced energy for our cars, our homes and our businesses may be just around the corner. The notion that a small province like New Brunswick can influence the price of oil or control the price of gasoline at the pump or electricity in the home is not on.