And, of course, war-related increases in fuel prices have since led to higher inflation. Oil has risen from $ 90 a barrel in January to about $ 115 now amid partial bans on Russian crude oil exports. Oil is 27% more than Putin’s invasion and no less than 65% more expensive than last year. That’s why it now costs over a hundred pounds to charge an average 55-liter diesel family sedan.
In the years since the Queen’s 25th anniversary, inflation has been further exacerbated by even higher energy prices. The “oil price shock” of the late 1970s, when the price of crude oil doubled in one year, was caused by the Iranian revolution.
As a result of the war between Iran and Iraq, oil production in both countries fell sharply, reducing global crude oil production by 5 percent, at a time when the OPEC exporters’ cartel did not mind compensating for the difference. Rising crude oil prices have shaken the highly oil-dependent world economy, with many Western countries, including the United Kingdom, in recession.
Oil remains vital for world trade, of course – not only as a source of heat and energy, but also as a key component in the production of plastics and other products. Yet technological advances mean that our dependence is declining. Measures of “oil intensity” – the number of barrels needed to produce $ 1 million in GDP – were about 3.5 times higher in the 1970s than they are now, according to the International Monetary Fund.
At the same time, OPEC announced last week that it would finally increase production by 50 percent, replacing much of Russia’s oil, which has partially disappeared from world markets. This is very important. Since Russia invaded after oil prices soared, Saudi Arabia and other OPEC members have done almost nothing to ease high oil prices, much to the disappointment of the Western world. But now the House of Saud is working through OPEC to return crude oil to $ 100 a barrel and even under, undermining Putin’s levers.
None of this means that renewed geopolitical shocks – not least in the Middle East – will not cause a new jump in energy prices. But what we have seen in the fall in oil prices in recent days is that energy crises can almost always be resolved through politics. If the relevant leaders and diplomats agree, if the right deals are made, more oil and gas can be pumped out fairly quickly, calming global markets and providing lower prices.
The same cannot be said of food – which, of course, must be planted months in advance, grown and harvested. That is why the situation facing the United Kingdom and the wider world economy is different from the shock of energy prices since the late 1970s. As global energy prices are clearly high, it seems to me that they could ease this autumn. Instead, we are facing food price shocks.
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