In the world of petroleum, the image of a $50-per-barrel price tag looms like a magical threshold: when the four-minute-mile was to track and field; what reaching 10,000 points was to the US stock market.
Although oil prices dipped just below $44 Thursday, simultaneous attacks on 20 oil pipelines in southern Iraq were yet another reminder that oil prices are in sight of this milestone. Analysts are beginning to tally the growing cost of oil hikes to the global economy.
"If you look down the road ... you can make the case that what we're seeing right now is a first squall of a major energy hurricane that's going to overwhelm the global economy," says energy economist Philip Verleger in Colorado.
While Mr. Verleger expects prices to fall in the near term, continuing uncertainty in oil producers Iraq, Russia, Saudi Arabia, Venezuela, and Nigeria is coinciding with expectations in coming years of limited refining capacity and smaller crude surpluses.
"They rank hurricanes one to five," says Verleger. "If we had a Force 5 hurricane in [the energy crisis of] 1973-1974, this one could be a Force 4. It could be quite serious."
The high oil prices, which climbed to a record high of $49.40 per barrel last Friday, may scare consumers and keep up gas prices. The effect worldwide is real, too. Every $10 added to a barrel of oil is estimated to knock "at least half of 1 percent ... equivalent to $255 billion" off world GDP, according to analysis in May by the International Energy Agency (IEA) in Paris. Higher prices "can still inflict substantial damage," the IEA found, and "undermine significantly the prospects for continued global economic recovery."
Still, experts say that in real terms, at $50 per barrel, oil is less than half the adjusted price reached during the energy crisis of 1980. The situation today is also better in many other ways - from more fuel-efficient Western economies, to the existence of a US strategic petroleum reserve - than during the energy crunch of the early 1970s.
"The major difference is that when I drive into my filling station today, I can buy as much as I want," says Robert Ebel, chair of the Energy Project at the Center for Strategic and International Studies in Washington. "In the 1970s, you could only buy 10 gallons, or fill certain cars on certain days. There was a supply shortage," he says.
While the market today in the US is actually in balance between supply and demand, experts say several things are keeping prices high: the "fear factor" of terrorist or other disruptions abroad; OPEC nations already pumping at capacity; surging global demand; and an increasing number of speculators coming into a volatile oil market.
"People don't like to pay more at the pump, taxi drivers and airlines complain, and farmers are going to get angry in the fall for the harvest," says Mr. Ebel. "But there is nothing - I don't care who is in the White House, Democrat or Republican - that can be done, short term, to lower prices."
The results of those oil prices are already being felt. British Gas, the UK energy giant that serves millions of households, announced Tuesday that higher gas prices were one reason it is raising natural gas (12.4 percent) and electricity (9.4 percent) bills in September.
Consumer spending has also been affected in the US. It slowed to a 1 percent annualized pace in the second quarter of 2004, from 4 percent in the first quarter. Some analysts note that the last three sustained oil price rises in recent decades have been followed by recessions.
"When you have higher prices - $50 or more - it is going to put a brake on economic growth ... this is a law of economics," says Muhammad-Ali Zainy, a senior energy economist at the Center for Global Energy Studies (CGES) in London. But that impact is not spread evenly.
Lessons from past crises
Learning from past energy crises, the US has developed the most fuel-efficient modern economy, which is less dependent on foreign imports than in the past, and created the strategic reserve to fill gaps. The CGES estimates that US oil demand is growing at 3.8 percent each year, and that supply has grown faster.
Europe and Japan are less fuel efficient and more dependent on imported oil, "but enjoy the privilege of their currencies appreciating against the dollar, so they are buying cheaper than the US is paying," says Dr. Zainy.
China and India are being harder hit: Despite their booming demand for oil - and spectacular economic growth rates last year - they are much less efficient and more dependent on oil imports. The approximately $6 billion India spent on importing crude oil last quarter accounted for one-third the value of all imports put together. India is downgrading growth forecasts, after an 8.2 percent burst in fiscal 2003.
China's currency is also tied to the weak dollar, making such imports expensive. Many other Asian economies rely on energy imports, and higher prices could lead to instability.
That negative impact is reversed for oil exporters, which for now - before the high prices slacken demand - are enjoying a bonanza.
Russia, the world's second largest producer after Saudi Arabia, has been paying off foreign debt and does not plan to borrow abroad next year, because of its mountains of oil earnings. On Monday, the cabinet approved a 2005 draft budget that boosts defense spending by 28 percent and is meant to fund reforms of Russia's welfare system.
Analysts estimate that Indonesia - which at the moment can't reach its OPEC quota and earlier this summer became a net oil importer - gains between $70 to $200 million for every $1 increase in oil prices. But it still lives close to the bone: Attempts last year to raise subsidized fuel costs were met with widespread protests.
Iranian officials, too, say the hiking oil prices are benefiting Iran - and keeping an economy stricken with high unemployment and corruption afloat.
"The market is going to stay, I don't want to say 'knife edge,' but on a balance beam. It's better than a tightrope," says Mike Lynch, head of Strategic Energy & Economic Research consultants in Massachusetts.
"Demand has been extremely strong this year, and that is unlikely to continue much longer, especially at these prices," says Mr. Lynch. "Then there is the political equation: This is the worst it's been since [Iran's Islamic Revolution in] 1979, in terms of the vulnerability of the oil system to political disruption."
One concern is government overreaction. "In the 1970s, governments went way overboard, and spent billions of dollars on alternatives," says Lynch. "I don't think we're at that point yet."
Still, a $50 barrel price was unforeseen just a year ago, and may be higher than black gold is worth.
"Between $48 and $50, there is no difference - it's psychological," says Roger Diwan, at the consultancy Petroleum Finance Company in Washington. "No one is really transacting at these prices, because people who buy oil think it is not a fair price. A lot of the action is happening in the paper market, among speculators, and they are driving the market."
"But at one point, those two realities have to collide," says Mr. Diwan. "And that is just a matter of time."