Unlike the oil shock of the 1970's that was politically induced by the emergence of the OPEC cartel, the current situation is one of classic economics. Excess demand in today's global oil market will have to be rebalanced - either by supply increases or through rising prices until existing demand moderates.

For the past year, many oil experts have insisted that new oil supply to meet rising demand was simply a matter of the major producers - Saudi Arabia, Iraq, the USSR for example - increasing idle output. So far, this has yet to occur. Traders in the oil market seem to be betting that these promises of idle supplies being brought online will not materialize. Clearly, there is more speculation than usual in the oil market, and it is possible that prices will subside once traders start losing money on their bets.

However, should the supply and demand equation continue to be tight or even out of balance, the burden will be on demand to decrease. In a heavy-industrial, capital-intensive, market such as oil, new supply can take years, even decades to develop. As demand from marginal uses (among these, consumer consumption) is priced out of the market, renewed interest in conservation, new technologies and even alternative fuels will be resurrected. Longer-term, the societal benefits may actually outweigh the shorter-term costs.

However, the shorter-term consequences could include a slowdown in world economic growth, driven by a decline in US consumer demand. If oil prices continue to climb, this may be closer than previously thought.