Rising oil prices are casting a dark shadow over the world economy. Last week's decision to increase output by the Organization of Petroleum Exporting Countries -- a largely nominal move to ratify the increase already in place -- has apparently failed to calm the jitters in world oil markets, where prices already exceed $40 a barrel. The upward trend will most likely continue.
Oil prices began to rise following the start of the war in Iraq. Beyond that, the world economic recovery, particularly continued high growth in the United States and China, has pushed up oil demand. Given long-term limits to oil production, demand is expected to remain tight. Speculative trading in New York, the benchmark market for oil futures, is also contributing to the price surge.
It is premature to believe, though, that the world economy is headed for another oil crisis. Still, one should not underestimate "geopolitical risks," such as large-scale terrorist attacks on oil facilities. Indeed, oil-supply disruptions from terrorist assaults remain a real possibility in politically unstable oil-producing countries in the Middle East, notably Iraq and Saudi Arabia.