Should we fear high oil prices?

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Last updated 7 March 2011 at 09: 04 GMT by Laurence Knight business reporter, BBC News shades of the 1970s..? The price of oil has a nasty habit predict global recessions.

The Yom Kippur war of 1973 and the Islamic revolution of 1979 both on cracks in the oil price led the economic downturn, mapped out.

In recent times, a record was preceded the recession of 2008 / 09 run-up in the price of oil and other raw materials.

With energy prices already well on the rise, is before the recent crisis in the Middle East and in North Africa, hit the global economy for an another tumble headed?

Problems and bubble charts

First a little history.

Oil is an international commodity, the price of which is set by global supply and demand.

The oil price shocks of the 1970s will were very much a supply-side history: crisis in the Middle East oil exports, disturbed send prices spiral and help feed of stagflation in the West.

Perhaps the most important result, that it petroleum of exporting countries (OPEC), long the hand of the Organization to limit global supply and maintain a higher oil price was after the crises of were could.

On the other hand the 2008 commodities bubble - in which was crude oil played a leading role - a different story.

..... .or of the recent commodity bubble?

Many have blamed that incident on financial speculators, but economist Paul Krugman argued that the problem was global demand.

With populations and incomes ever in Asia, it seemed a relentless increase in the demand for energy will be.

And with a finite limit of hydrocarbons in the ground, "Peak Oil" - the point where global oil production reached its highest practicable rate - was the keyword.

Double whammy

So do what we are? The 1970's or 2008?

Unfortunately, the answer could be a combination of both.

Shortly before the current turmoil in the Middle East began, Professor Krugman was already argued that the strong global recovery - underway led anywhere outside of the forlorn West-, exactly the same economic conditions that produced the previous rise in raw material prices.

And the problem is not only manifested energy prices - food, metal, and cotton are also on the up again.

Continue reading the main story "what the commodity markets tell us that we live in a finite world, the rapid growth of the emerging pressure on limited supplies of raw materials, is placed in the driving their prices", he said.

Now, added with Libya in the mix, the price of Brent crude has more than tripled since hitting a low point in December 2008.

And it is all-time high, only about 20% below the this, the you in July 2008, shortly before the global financial crisis set.

Stretching and dissemination

But Libya is how significant you may questions.

Finally, it is only 2% of global oil production, although its share of the European market is estimated at about 10%.

So far is it estimated that between one third to a half of exports have disrupted Libya oil which.

But even if all his 1.6 million barrels of oil per day were shut down, Saudi Arabia - the world's largest oil producer - promised in additional step.

The Saudis-that dominieren-OPEC, say they have an extra 4 million bpd in spare capacity, so what is the problem?

Declan Curry that receives the money you spend for gasoline

Thanks to the resurgent global demand, spare capacity is already very excited about, and what the Saudis have to offer is pretty much.

Secondly, markets are concerned about difficulties spread far beyond just Libya.

Have been seen already in the Iran - a much larger oil producer - as well as in Bahrain, gas-rich Algeria, and more recently in Oman protests and government crackdown.

Out of Pocket

So is that we are headed for another recession if oil prices keep climbing?

Well, not necessarily.

Economies had decades to get to high and volatile energy prices, with the result that people - especially Europeans - use energy much more efficiently today.

However, say many economists who play bubble 2008 raw materials a role in the subsequent financial crisis and recession in the West.

The argument is that the rising food and energy bills were what already affect corporate earnings subprime borrowers in outright default on their mortgages, the first in a series of financial dominoes fall tilted.

But now, that the property in the United States and Europe - but perhaps not in the UK - bubbles have have been cut, the same financial crisis should be repeated with hopefully less.

Instead, that the higher oil prices probably means round - this time, but only if it remains elevated for several months and begins, a further squeeze on budgets of households is passed by the consumer.

And this will be particularly painful for households with low income in the West, the bulk of their income energy spend.

Price value?

What is more worrying is that price increases at a time when central banks are coming under increasing pressure to boost interest rates start.

And this is particularly the case in the United Kingdom twice the Bank of England target inflation is currently running.

Something else to ensure

If the price of oil at $120 per barrel stayed, it would be a one-time boost in UK retail inflation of 0.48%, according to a survey by Andrew Clare cause prices of Fathom financial consulting.

In Europe and the energy-inefficient 0.51% to 1.63% would be us, the impact on consumer prices.

If it rose $150, and remained there - the impact would be doubled.

The dilemma for the Western monetary policy is particularly unpleasant, as the only way for them, is to keep inflation low by households in their countries to punish even more by increasing its borrowing costs.

Nevertheless, it is too early to say whether the price of oil high for long is to remain enough to such doom and gloom.

And if it means the world gets a stable and democratic Middle East, then perhaps a price is worthwhile.