FOR THE PAST 30 years, the price of oil has been the single most important determinant of the world's economic health. Now that supply is being overtaken by demand, just how important a role it plays will soon be very clear.
This year alone, the International Energy Agency estimates that global demand for oil is set to increase by 1.95 million barrels a day - the fastest increase in absolute terms since 1988, the year the Japanese equity market bubble started to burst.
Oil prices are rising because global growth is accelerating and China and India, the world's two most populous nations are booming. Global demand is estimated to account for 80 per cent of the current price.
Terrorist attacks and the ugly mess that United States President George W. Bush, Defence Secretary Donald Rumsfeld and friends have created in Iraq is estimated to account for the remaining 20 per cent. Event risk is extremely high, coupled with strong long-term fundamentals, so it is no wonder that crude oil prices are trading at more than 20-year highs and oil tanker rates are at four times the daily break-even point.
In 1960, when five countries - Iran, Iraq, Saudi Arabia, Kuwait and Venezuela - formed a loose coalition called the Organisation of Petroleum Exporting Countries, oil was priced at less than US$2 a barrel and the US satisfied about 70 per cent of its needs from domestic production. Today things are very different.
From this perspective, Thursday's Opec meeting in Beirut has taken on an extremely high political and historical significance. Although the increase in Opec's production quota was on the high side, the actual impact on production is minimal.