We have learned to live with $100, and cheap oil is not in our interest

Might the present oil shock dissipate as it did in the 1970s and we head back to cheap oil again? The working assumption of most people is that it won’t and that the age of cheap oil will never return


What is expensive and what is cheap? It is a measure of the battering that oil-users have taken that oil at $100 should be a relief. Go back 18 months and such a price would have been almost unthinkable and the consequences horrendous. As it has turned out the prices have been higher, yet the consequences less grave. Oil at $100 is the same in real terms as it was at the early 1980s peak and far higher than after the 1970s oil shock. Yet the world economy has continued to grow. The United States has kept growing; China and India have kept growing. True, the eurozone economy fell back in the second quarter and the European Commission is now predicting recession in the UK and Germany. But even assuming these forecasts are right (and I think that having been far too optimistic in the past the commission may now be being a touch too pessimistic) the recession it suggests will occur is far less serious that that of the 1970s or 1980s.

So the world has learnt to live with oil at $100, or so it seems. How it has done so matters a lot because it goes some way to explaining how future growth might be sustained in the face of undoubtedly tight oil supplies and the inescapable truth that oil supplies are finite.

Independent