Could the bad old days of economic decline be about to return
Since OPEC agreed to supply-cuts in March, the price of crude oil (1)
jumped to almost $26 a barrel, up from less than $10 last December.
This near-tripling of oil prices calls for scary memories of the 1973 (2)
oil shock, when prices quadrupled, and 1979-80, when they also
almost tripled. All previous shocks resulted in double-digitinflation (3)
and global economic decline. So where the headlines warning of (4)
gloom and doom this time
The oil price was given another push up this week when Iraq
suspended oil exports. Strengthen economic growth, at the same (5)
time as winter grips the northern hemisphere, could push the price
higher still at the short term. (6)
Yet there are good reasons to expect the economic consequences
now to be less severe than in the 1970s. In most countries the cost of
crude oil now accounts for a small share of the price of petrol than it (7)
did in the 1970s. In Europe, taxes account for to four-fifths of the (8)
retail price, as even quite big changes in the price of crude have a (9)
more muted effect on pump prices than in the past. Rich economies
are also more dependent on oil than they were, and so less sensitive to (10)
swings in the oil price.