[00:03.89]2002 Text3

[00:07.33]Could the bad old days of economic

[00:09.54]decline be about to return?

[00:11.96]Since OPEC agreed to supply-cuts in March,

[00:15.39]the price of crude oil has jumped to almost $26 a barrel,

[00:20.03]up from less than $10 last December.

[00:23.67]This near-tripling of oil prices calls up scary memories

[00:27.90]of the 1973 oil shock,

[00:30.53]when prices quadrupled, and 1979-1980,

[00:34.65]when they also almost tripled.

[00:38.06]Both previous shocks resulted in double-digit inflation

[00:41.89]and global economic decline.

[00:44.41]So where are the headlines warning of gloom

[00:47.04]and doom this time?

[00:49.55]The oil price was given another push up this week

[00:52.78]when Iraq suspended oil exports.

[00:55.60]Strengthening economic growth,

[00:57.62]at the same time as winter grips the northern hemisphere,

[01:01.25]could push the price higher still in the short term.

[01:05.29]Yet there are good reasons to expect

[01:06.97]the economic consequences now

[01:08.98]to be less severe than in the 1970s.

[01:12.31]In most countries the cost of crude oil now

[01:15.23]accounts for a smaller share of the price of petrol

[01:18.46]than it did in the 1970s.

[01:21.68]In Europe, taxes account for up to four-fifths

[01:25.08]of the retail price,

[01:26.90]so even quite big changes in the price of crude

[01:29.92]have a more muted effect on pump prices

[01:32.64]than in the past.

[01:34.96]Rich economies are also less dependent on oil than they were,

[01:39.09]and so less sensitive to swings in the oil price.

[01:42.82]Energy conservation,

[01:44.54]a shift to other fuels and a decline in the importance of heavy,

[01:48.56]energy-intensive industries have reduced oil consumption.

[01:53.20]Software, consultancy and mobile telephones

[01:57.05]use far less oil than steel or car production.

[02:01.20]For each dollar of GDP (in constant prices) rich economies now

[02:07.05]use nearly 50% less oil than in 1973.

[02:11.69]The OECD estimates in its latest Economic Outlook that,

[02:17.12]it oil prices averaged $22 a barrel for a full year,

[02:21.76]compared with $13 in 1998,

[02:25.29]this would increase the oil import bill in rich economies

[02:29.02]by only 0.25%-0.5% of GDP.

[02:34.67]That is less than one-quarter of the income loss

[02:37.78]in 1974 or 1980.

[02:41.30]On the other hand, oil-importing emerging economies

[02:44.95]--to which heavy industry has shifted

[02:47.57]--have become more energy-intensive,

[02:50.09]and so could be more seriously squeezed.

[02:53.91]One more reason not to lose sleep over the rise

[02:56.54]in oil prices is that,

[02:58.46]unlike the rises in the 1970s,

[03:01.09]it has not occurred against the background

[03:03.22]of general commodity-price inflation

[03:05.54]and global excess demand.

[03:08.28]A sizable portion of the world is only just emerging

[03:11.40]from economic decline.

[03:13.52]The Economist's commodity price index

[03:16.13]is broadly unchanging from a year ago.

[03:19.56]In 1973 commodity prices jumped by 70%,

[03:24.42]and in 1979 by almost 30%.