Oil hits $135 per barrel

28 May 2008

Oil hits $129 per barrel

Photo: Julian Jackson

The price of oil continues to spike upwards, reaching over $135 per barrel on trading in New York recently. This was an almost $20 surge during the week. Oil has gone up nearly 30% in four months. The effects of these prices are felt throughout the economy as oil is built into every product either as a raw material, eg plastics, pharmaceuticals, as well as a transport cost for the fuel to take the product from producer to end-user.

It is a general theory among many economists that oil price spikes cause recession. Professor Andrew Oswald, of Warwick University has studied the phenomenon. He says that slow-downs and recessions follow sharp increases in oil price, “We saw this most notably in 1974, 1979, and 1990. On each occasion, an oil price spike was followed by recession in the world economy.”

The current rise, which started in 2004, has taken some time to have an influence on Western economies, but the effect is a cumulative, erosive one, and magnified by shortages of other commodities such as steel and copper. On the BBC's programme Working Lunch it was stated that factory gate prices were up by 7% this year.

The respected Peak Oil Blogger who goes by the pseudonym Jérôme à Paris has outlined a plan to deal with the situation:

  • launch a massive plan to subsidize home energy efficiency improvements - that will help the devastated construction sector, create lots of jobs, and help reduce the energy bill massively;
  • reinforce efforts to build renewable energy plants. The current support system works, and needs not be changed, but massive investment in the grid, and in working but still-too-expensive technologies like solar power should be done or supported by government. Again, this will create plenty of jobs locally, and will help move away from oil and climate-deadly coal.
  • massive investment in infrastructure - in particular focusing on intercity rail and local transit networks and a large scale would also appear to provide excellent bang for the buck.
  • In addition to that, targetted tax increases to fund all this should be considered, and rigorous re-regulation of financial institutions.”

OPEC has stated that oil is expected to rise to $200 per barrel, so there is an urgency about measures to ameliorate the situation before the UK's economy follows the US one into a recession.





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