A global turning point

When a New York oil trader pressed the button to buy a consignment of oil for $100 a barrel last week, he confirmed that we have entered a new era. As British householders are finding out to their cost, the days of cheap energy, responsible for so much modern-day prosperity, are over. If warnings about global warming did not make us change our behaviour, high prices might.

The shift we are seeing, however, goes beyond household budgets and setting the thermostat lower. The world is changing profoundly and $100 oil is a symptom and a cause. As in the 1970s, a huge transfer of wealth is happening from oil consuming nations to the producers.

Oil producers have seen their revenues quadruple in the past five years to $750 billion (£380 billion). The petrodollars are flowing and not just to the Middle East. Russia, on its knees a decade ago, is awash. A country that defaulted on its international bonds in the late 1990s has $425 billion of gold and currency reserves and a $150 billion stabilisation fund, built from oil and gas wealth. President Vladimir Putin has discovered the energy weapon and intends to use it. High oil prices, meanwhile, prop up regimes such as those of Hugo Chavez in Venezuela.

In the past the sheikhs used their oil wealth to support opulent lifestyles and vast entourages. They still do, but there is a harder edge to how they spend their windfalls now. The subprime mortgage crisis left many American and European banks desperate for capital. The Abu Dhabi Investment Authority provided it for Citigroup, while the Saudi royal family did so for UBS. Add in strategic investments in US banks by the sovereign wealth funds of China, Singapore and other Asian economies and a significant transfer of ownership is occurring.

These moves are accompanied by a shift in the world’s economic axis. The credit crunch and higher energy prices are hurting some low-income poor countries but their biggest impact is on the advanced industrial nations. Opinion is divided on whether America will slide into recession this year, while growth in Britain and Europe is forecast to slow sharply. Japan has already slowed. Meanwhile, the emerging giants of China and India appear immune. In this year of the Beijing Olympics, China is on course for an easy victory in the economic race, with a likely growth rate of 11% maintaining the 30-year ascent of the People’s Republic.

We should not despair of these developments. A multipolar world is less prone to slumps. A few years ago, the worries now being expressed about the US economy would have led many to predict a global recession. American sneezing meant impending flu for everybody. That is no longer the case. Thanks to China, India and the oil-rich nations, the world will slow but not stop. The fact that troubled banks have somewhere to turn to for capital is better than nowhere.

However, the changing world poses challenges. Are we flexible enough to cope not only with high energy prices but also with the competition coming from the emerging giants? The failings of our education system, the fact that more than half a million young people are on incapacity benefits and a gaping balance of payments deficit � £20 billion in the third quarter of last year � would suggest not. Instead of competitiveness there is complacency and unless that changes we will suffer.

The challenge is not just for Britain. Whether the next US president is Barack Obama, Hillary Clinton, John McCain, Mike Huckabee or one of the others who will jostle for position in New Hampshire this week, he or she will face a new reality. America became the sole superpower because of the triumph of capitalism. Now the balance of economic power is moving per-ceptibly and with it will come a shift in the balance of political power. However talented the next US president, there may not be a great deal that he or she can do about this.

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