Market will survive high oil prices.

First, let's face up to the bad news. Today you pay over $90 dollar for a barrel of crude oil. During the oil crisis of the late 1970s and the early 1980s a barrel only costed $80 in today's dollars. So the high price is indeed a threat for the economy.
The following years, the oil price is likely to stay above $50. The problem is that al the cheap oil is being used up and new production is more expensive.
Above this, you also have China with his thirsty economy. All this could result in replay of the stagflation of the 1970s and the following recession of 1982-1983, but there is some good news...
First, oil plays a much smaller role in modern economies than it used to. For each additional unit of oil we can provide one-quarter more energy then in the 1970s.
Globlization trends like competition, outsourcing and cheaper foreign labor costs will help to keep the inflation in line.
In a sense this situation is even self-correcting. If the U.S. economy stays in a slump for a long time, the growth of China's export-orientated economy will slacken, and therefore its oil-demand will slacken.
The real danger now would be that some sort of a military conflict disrupted the supply of Middle Eastern oil for a certain time.


I agree that a price of $90 a barrel is a real threat. I also think that the oil price will stay around $50 a barrel, or even will rise to $60 dollar a barrel in the following years. With prices of $50 or even $60, a healthy economy can be sustained. To do so production expenses of oil will have to be decreased.
At the other hand there was the good news. Globlization would keep the inflation, which is caused by these high prices, in line. At the other hand, I can't agree with the self-correcting theory. This isn't good news. If the U.S. economy stays in this slump for a long time, we will have had a recession or even depression, before the self-correcting effect kicks in!
The real danger actually is some sort of military conflict. And with Iran willing to produce nuclear weapons, this remains a possibility. But who can guess the odds?


Thomas

source: http://money.cnn.com/2007/10/19/pf/oil_bullmarket.moneymag/index.htm?postversion=2007101908