Oil and Economy

Could the bad old daysof economic decline be about to return?Since OPEC agreed to supplycuts inMarch,the price of crude oil has jumped to almost $26 a barrel,up from

less than$10 lastDecember. This near-tripling of oil prices calls up scary memories of the 1973oil shock,when prices quadrupled,and 1979一1980,when they also almost

tripled.Bothprevious shocks resulted in double-digit inflation and global economicdecline.So where are the headlines warning of gloom and doom this time?

The oil price wasgiven another push up this week when Iraq suspended oilexports.Strengthening economic growth,at the same time as winter grips thenorthern

hemisphere,couldpush the price higher still in the short term.

Yet there are goodreasons to expect the economic consequences now to be less severe than in thel970s.In most countries the cost of crude oil now accounts for a smaller

share of the priceof petrol than it did in the l970s.In Europe,taxesaccount for up to four-fifths of the retail price,so even quite big changes inthe price of crude have a more

muted effect on pumpprices than in the past.

Rich economies arealso less dependent on oil than they were,and so less sensitive to swings inthe oil price.Energy conservation,a shift to other fuels and a decline in the

importance of heavy,energy-intensive industries have reduced oil consumption.Software,consultancyand mobile telephones use far less oil than steel or car production.For

each dollar ofGDP(inconstant prices)in rich economies now use nearly 50%less oil than in1973.The OECD estimates in its latest Economic Outlook that,if oil prices

averaged $22 abarrel for a full year,compared with$13 in 1998,this would increase the oilimport bill in rich economies by only 0.25％～0.5%of GDP.That is less than one-

quarter of theincome loss in 1974 or 1980. On the other hand,oil-importing emerging economies一to which heavy industry has shifted一have become more energy-

intensive,and socould be more seriously squeezed.

One more reason notto lose sleep over the rise in oil prices is that,unlike the rises in the1970s,it has not occurred against the background of general commodity-price

inflation and globalexcess demand.A sizable portion of the world is only just emerging fromeconomic decline.The Economist's commodity price index is broadly

unchanging from ayear ago.In 1973 commodity prices jumped by 70%,and in 1979 by almost 30%.

The main reasonfor the latest rise of oil price is_______.

A.global inflation

B.reduction insupply

C.fast growth ineconomy

D.Iraq's suspensionof exports