It’s telling that the West’s sanctions on Russia for its invasion of Ukraine haven’t included oil and gas exports. In our interconnected global economy, actions levied against one country have consequences for others. Blocking Russia from exporting energy would dangerously drive up prices for the rest of the world.

Sure, the Russia/Ukraine situation has pushed energy prices upward. But even without the conflict, oil prices were likely to trend in that direction. If you think — or hope — that higher oil prices are just a temporary phenomenon, you’ll likely be disappointed.

Higher Energy Prices Are Not an Anomaly

Evidence continues to suggest there’s nothing anomalous about this surge in oil prices. Two recent pieces of evidence — one related to demand, the other to supply — show why.

The first comes from a recent monthly report from the International Energy Agency (IEA). You see, there have been big mistakes made in calculating oil demand. Over the past 15 years, the global consumption of oil for making petrochemicals has been underestimated by about 3 million barrels a day.

This is due largely to accelerating petrochemical demand from emerging economies. This suggests that, even if electric vehicles do become as widely adopted as predicted, oil demand will remain strong over the longer term.

To replace oil in applications other than transport (i.e., gasoline) will require making a major push on hydrogen, the only clean energy carrier that can supply the extreme heat needed to produce petrochemicals.

On the supply side, while many “What, me worry?” analysts still point to fracking as a potential savior, the heads of major frackers ranging from Pioneer (NYSE: PXD) to Continental Resources (NYSE: CLR) beg to differ.

Too much cheap oil was used up in the frantic, doomed-from-the-start push to make America energy-independent. Fracking is simply not going to be a viable source of cheap oil in the long run.

Compared to conventional oil production, fracking is costlier not only in money, but also in terms of energy needed. Put another way, you are spending more energy to get back energy.

Adequate Supply?

The oil market crash several years ago greatly reduced oil exploration activity. Oil producers became gun-shy about looking for future reserves as they grew less certain that prices would justify the billions of dollars exploration would cost.

And since it can take years to bring a new oil project online, it was questionable whether there would be enough reserve replenishment to meet future demand.

Similarly, when we look at the contradictory actions of the Biden administration, we can see how precarious the supply-and-demand balance is.

On the one hand, Biden has sought to limit domestic oil production for environmental reasons. But on the other, he has asked OPEC to produce more oil because prices were rising.

This is a case of wanting to have your cake and eat it too. While wanting to protect the environment is understandable, the supply still needs to come from somewhere in order to meet demand.

In order to transition to renewable energies in an orderly manner, the world will still need oil and gas. We can’t just flip a switch and suddenly become a world that doesn’t run on fossil fuels. Oil and gas still need to fill the gap.

If nothing else, we will need energy to produce the very natural resources required to build out the renewable energy infrastructure.

If our leaders shortsightedly cut off oil production now, the goal of a world run on sustainable clean energies will likely turn out to be a pipe dream.

For investors, don’t dismiss oil. Recent months have shown that the bearish market sentiment against oil was unwarranted. Investors should still own oil and gas in their portfolios.