Part of the reason seems to be many countries have diversified their energy base away from oil and towards alternative environmentally friendly fuels such as biodiesel. It also helps that alternatives become more economically viable as the price of oil rises. Furthermore, importers like Japan have become more efficient users of energy. The relentless push towards $100 will only galvanize efforts to step up energy efficiency and the development of alternatives.
Jim Glassman of JPMorgan suggests surging oil prices may indeed be a blessing in disguise: "High oil prices, as unhappy as they make us, are doing God's work, by curbing our appetite for carbon fuel, pointing us to greater energy security and limiting the impact of human activity on the environment. The decline in gasoline demand in response to rising energy costs is proof that markets work and that market mechanisms are our best energy policy."
Nevertheless, it’s still early days in terms of oil’s potential slowing effect on the economy and central banks like the U.S. Federal Reserve are no doubt watching oil markets nervously for signs of mounting inflationary pressure.
Two years hence, if this writer is still churning this column, will we be talking about the prospect of $200 a barrel oil? Stay tuned.
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