Hamish McRae: After the Greek bailout, will oil be the next thing to slip us up?
SO what is the next thing that might clobber the world economy now that the Greek debt collapse has been postponed for a while? It must surely be the oil price. We are very aware of this at a personal level every time we fill up the car. And, as tensions with Iran mount, we are becoming aware of the economic consequences of any disruption in oil supplies from the Middle East. But there is an aspect of the energy market that has rather crept up on us, and it is this.
We are running into a squeeze on oil supplies before the recovery has really got going. Every previous oil shock has come after a long economic expansion, with a surge in the oil price signalling (and contributing to) the end of the boom. Now the Brent oil price is back to $120 a barrel, yet the economic output of the developed world is still below its peak in 2007/8. This has never happened before.
There is a simple, but not very comforting explanation. If you look at total world economic output, it is indeed well past the previous peak, for growth in the emerging world has more than offset decline in the developed world. As a result, global demand for energy is very strong; it is just that not much of that additional demand has been coming from our bit of the world. As the US recovery deepens and if and when the eurozone shows some growth, demand from the developed world will pick up and the pressure on supplies will become really intense.