The pace of global oil demand growth should increase next year as rising consumption in emerging markets outweighs declines in developed nations hard hit by the high fuel costs and mounting economic problems. The barrel of crude which sold for $65 in 2007 might soon cost $200.

With such astronomical increase coming on top of a credit crunch, economists are talking seriously about the prospect of world recession and, even the worse, stagflation – the lethal combination of inflation and economic stagnation last seen in the 1970’s and early 1980’s.

We are told it is all due to a world shortage cause by soaring demand for oil in China and India, and that we can expect record prices to continue for eight years.

But is this really the case? Nowhere in the world are people queuing at petrol pumps; there are no power blackouts and no idle tankers are waiting in the Gulf for oil.

On the contrary, oil storage tanks across the world are full, super tankers are queuing at ports to unload and no major oil field is closed. Across the world, 86million barrels of oil are produced every day which at the moment is sufficient, not least because consumption in America – which burns a quarter of the world’s supply every day – is actually declining.

Alarmists also say that the world’s oil supplies have passed their ‘peak’, that the world has consumed half of all its oil and that the remaining 1trillion barrels will be gone by 2025.

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This is quite simply tosh. BP’s experts and others insist that at least 4trillion barrels of oil are ready to be extracted and there are certainly many more trillions to find, not least in the Arctic and across the Atlantic.

No one it seems is willing to proclaim-the truth: there is no oil shortage. The fact is that oil is an artificially high price because of a combination of factors.

First there is the greed of the oil traders, bankers and speculators in the world’s financial centres who are pocketing billions.

Then there is the oil-producing countries whose economies profit massively from artificially keeping the oil price high.

And next there are the scare stories – from hurricanes heading for oil rigs in the Gulf of Mexico, power failures in Iraq or an oil pipeline being blown up in Nigeria – that these two groups exploit together in an unholy alliance to push the prices up.

There is no question that speculators – employed by Wall Street’s hedge funds, pension funds and banks, have used the scare stories to drive up prices.

Producers have learnt the lessons of history. They know only two well that it was Britain’s North Sea oil that destroyed OPEC’s first cartel during the 1980’s; and that, in 1998, their economies were ruined when prices plunged to $8 a barrel after OPEC responded to the West’s demand for increased production.

Admittedly, circumstances have changed since then. For the first time, China and India are aggressively competing for oil from the areas which traditionally supplied the U.S. and Europe. Meanwhile, oil consumption in the newly enriched oil-producing states themselves is soaring as their populations explode.

But it would be wrong of those in the West to despair. Firstly, after inflation and the weak dollar are taken into account, oil is only marginally more expensive than during another oil crisis in the 1980’s. Back then, the bubble eventually burst and prices collapsed.

Secondly, if countries quickly commissioned alternatives including nuclear power, renewable energy and environmentally acceptable coal-fired power stations, the oil producers would become terrified that their source of income was endangered.

Remember two things: all price bubbles burst, and there are still vast untapped oil fields which will supply the world’s needs for centuries to come.

Oil was unlikely to fall below $100 per barrel as strong demand from emerging economies such as China and India put a floor under prices, a member of Kuwait’s top oil council said in remarks published on Sunday.

Crude prices on the international market are unlikely to drop below $100 a barrel in the near term despite shedding almost $33 per barrel in a month, oil market experts said on Monday.

They say they don’t anticipate a full-blown collapse in crude prices despite a slowdown of the US economy, the world’s biggest oil importer. Neither do they see a major spike in crude prices due to the latest geopolitical tensions erupting between Russia and Georgia, which has led to Russia resorting to airstrikes and pounding Georgia’s capital, Tbilisi.

“The oil market doesn’t seem to be very perturbed by the happenings in Georgia. There is a downward bias in the oil market that will continue for a little while,” said Dalton Garis, associate professor of Economics at the Petroleum Institute in Abu Dhabi.

On Monday, in early trade, Brent crude futures on the ICE in London were trading a shade above $114 a barrel. In contrast, on the New York Mercantile Exchange, the Nymex crude oil futures for September delivery in the US were trading close to $116.50 per barrel.

“The crude prices in the near-term look like trading in a range of $100-$120 a barrel,” said an oil analyst, who didn’t want to be identified.

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Analysts say the world oil output of nearly 87 million barrels per day (bpd) is just about keeping pace with current demand, with new demand being led by China and India. Saudi Arabia is the only oil producing country with any major spare capacity, so the market supply is getting increasingly tight with the world oil consumption growing by around 1 million bpd each year.

Ground reserves. The reserves in the ground, meanwhile, are not getting replaced enough with new significant discoveries that can help keep the crude prices in a lower range.

Steve Peacock, president for the Middle East and South Asia for global energy major, BP, said that “continuing tightness in supply versus demand and tightness in spare capacity” will ensure that the prices don’t drop significantly from the current levels.

UK-based John M. Roberts, an energy security specialist with Platts, a provider of energy information, agrees. “Insufficient investment in developing new oil producing fields by producer countries, mainly Opec [Organisation of Petroleum Exporting Countries], and insufficient investment in alternative sources of energy by main consuming states means that the [supply] position will remain generally tight,” said Roberts.

Still clearer indications of where the world oil prices are headed will come on September 9, when Opec oil ministers meet to discuss their output policy.

Oil at $150? Very likely and could be soon. How about $170, or even $200? That is possible before the end of this year. There are those who see the price of a barrel of oil hitting $300 and even $500 in the next few years. Impossible you say, well just remember that last year a barrel of crude was selling at $70 and even then the markets were complaining that it was already too high.

The oil conundrum is playing havoc with local, regional and international markets. The producers say it’s not their fault and consumers blame speculators and a battered dollar. Others point to the current crisis between the West and Iran, which in recent days moved from rhetorical ranting to sabre-rattling. There is confusion, fear, mistrust and greed in the oil business today, but what else is new?

Oil has been a central pillar of international politics and trade for decades, and the West has traditionally played dirty games when it came to preserving the life-line of its economy and civilization. Cheap oil enabled Western societies to flourish and expand, the United States being the most notorious example. Wars were waged, coups staged and regimes toppled in order to maintain control of production, exploration rights, distribution and price.

It is unlikely that the rules of the game have changed in recent years, but it is now a fact that the new economies of China, India, Russia and others are competing ever more with the West for a bigger share of available oil. Economic displacement is a matter of time, with studies predicting that China will unseat the US as the biggest world economy in 30 to 40 years if not before.

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This is probably why China is now eyeing Africa as the next source of new oil finds and is investing tens of millions of dollars in Sudan Chad, Nigeria, Angola, Algeria, Gabon, and Equatorial Guinea. According to US energy sources the Chinese now account for more than 40 per cent of total growth in global demand for oil and have replaced Japan as the world’s second largest oil importer, after the United States.

It is not all speculation that is driving energy prices to new territories, although President George W. Bush and a number of prominent experts would disagree. Try conspiracy and behind-the-scenes power struggle between the United States and China. The US economy is officially in recession and is unlikely to recover for years. Meanwhile, China, along with India and other emerging economies, are trying to prevent their markets from overheating. But investments are still pouring in and the shift will continue to move from the north to the south.

But expensive oil is hurting the US economy as much as emerging ones. That is true, but with trillions of dollars – generated over the years by trade surplus – in the coffers of China, Russia and India, these countries may have a better chance at weathering the current storm. The question then is who is twisting the other’s arm? In this game of finger biting China and others may be the ones who will be left standing by the end of the day.

According to Charles Biderman in a recently published article in Forbes, what is happening now could spell a financial disaster for the US. He writes that at present levels the US consumes 21 million barrels of oil per day. “At $135 per barrel, the US spends $1 trillion per year on oil, which is equal to 15 per cent of the $6.8 trillion in take-home pay of everyone who pays taxes. If oil prices rose to $200 per barrel, the US would spend $1.5 trillion per year on oil, which would be equal to 22 per cent of take-home pay. In other words, the US will be broke long before oil prices hit $200 per barrel, and the rest of the world would be sure to follow.”

But if this is the case then why can’t governments work together to chase away speculators who are driving energy prices through the roof? There are few indicators that consumers and producers are doing just that. The US insists that the crisis will go away if senior Organization of Petroleum Exporting Countries (Opec) members, such as Saudi Arabia, increase production. In fact the Saudis did just that recently, but prices continued to soar.

There are other reasons behind the unchecked rise of oil prices besides speculation. One is the weak dollar and another is the ailing state of the US economy where investors have given up on stock markets and embraced commodity futures. It is a strange situation that we find ourselves in today; ample supplies of oil, slow growth at global levels and yet soaring energy prices.

Opec has rebuffed calls to increase production citing mismanaged US economy as one cause for current speculative run. But with the recent tension in the Gulf over a possible Israeli strike against Iran, speculators have another good reason to push prices north.

In all it seems that bad US policies have contributed to the dire state that the world finds itself in today. If the US wanted to derail the Chinese economy by “allowing” prices to rise to these dangerous levels, they have failed to achieve their goals. If they thought that applying pressure on producers would force them to increase production, they have failed to do that as well. Meanwhile, the US economy is hurting and whether the Americans know who is behind the crisis or not, they certainly have done all the wrong steps to contain it.

Oil, Coal, Natural Gas, Nuclear, Wind, Solar Energy? The world’s energy appetite will at least double by the end of this century (some claim it will triple). If we attempt to meet this burgeoning global demand exclusively with fossil fuels, the environmental consequences are difficult to predict. We are products of a world where energy was long assumed to be cheap, unlimited and readily available. Today, all three assumptions are in question.

In a few short years, the problem of energy has emerged as one of the defining—and most difficult—challenges of the 21st century.

Economic activity is clearly the single most important driver of the energy demand of a country. This demand does change as countries gradually shift from more energy-intense manufacturing industries to service activities or when technological advances make energy use more efficient – but these processes take time and with oil reaching all time highs the effects are already being felt.

Oil; Countries with a high dependency on oil are already suffering higher relative inflation against their peers which will subsequently damage their exports. Spain, Greece or Belgium are already suffering from inflation above the average Euro zone inflation of 3.3%, already way above the 2% untries nuclear and alternatives seem to be the most viable energy sources in the not so distant targeted by the ECB. What alternatives do we have in Europe other than oil?

Coal, the main source of energy in both China and India, is cheaper to extract compared to oil and gas but is highly polluting. Although, vast reserves are still available, rail and harbour bottlenecks, as well as a sharp increase in demand is making supply fall behind.

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The price of coal from South Africa, the main exporter to European utility companies, has increased by 20% so far this year. Besides, in the short term, South Africa may limit exports to avoid power supply crises like they suffered in late January when some mining houses were ordered to stop mining to avoid blackouts. These would have large implications as it is one of the main producers together with Australia and Indonesia.

For the longer term, enforcing the Kyoto agreement should end up curbing demand of coal, at least, on the treaty signing countries like Germany, where more than 20% of energy demand is still coming from coal.

Natural Gas produces the least carbon dioxide of the fossil fuels, which makes it very attractive for the production of electricity by power companies in Europe. Its demand has grown steadily outside its traditional use for heating and it is already a major source of energyfor the UK, Italy and Germany. Most of the gas coming into Europe flows from Russia (providing Germany), Norway (the UK’s main provider) and Algeria which through its two main pipes, supplies the Iberian Peninsula and Italy, too. However, diameter, operating pressure, length of the current pipes, as well as the limited number of storage facilities available limit supply – which has not been able to keep up with demand. The price of natural gas coming in to the UK has gone up by 130% in the last 12 months.

Nuclear seems to be the medium term solution which some European countries like the UK or Italy are willing to pursue. Italy has recently announced it will go back to nuclear energy after 20 years as it will allow them “the production of clean energy, at low cost, on a large scale and without damaging the environment”. However, nuclear energy still generates safety concerns and challenging problems related to the disposal of its radioactive waste.

Countries like France, Sweden, and some of the former Soviet Union allies already rely heavily on nuclear energy. Within renewable energies Hydropower is by far the largest source of energy. It generates no carbon dioxide and produces electricity less expensively than energy coming from both fossil fuel and nuclear. However, supply depends on water reserves and the topography and weather of countries and while it is a major source in Austria and Norway it is less of an option for countries like the UK.

Other alternative sources like Wind or Solar Energy – although growing very rapidly in countries like Germany and Spain – are still heavily dependent on state subsidies and the deployment of improved technologies. In the medium term, these alternative sources are, however, set to play an important role with the European Commission targeting 20% of energy coming from wind, wave and solar sources by 2020.

Overall, cheaper access to energy will be a large competitive advantage for some European countries. Countries like France, Norway and even the UK stand out to be in a much better position than Spain, Italy or Ireland, which are yet not on track to fulfill their part of the Kyoto agreement. This rules out coal as an alternative for these countries which will likely increase their dependency on gas in the short term, but there are some risks as Algeria is the main provider for both Italy and Spain.

For these countries nuclear and alternatives seem to be the most viable energy sources in the not so distant future.