It's oil panic time in Whitehall again. The Energy and Climate Change Secretary, Chris Huhne, says that the "crisis in the Middle East" means that we can no longer "afford to go on relying on such a volatile form of energy" as oil; meanwhile his colleague, the International Development minister, Alan Duncan, tells an interviewer that "if there were a terrorist attack in the Arabian Gulf, it [the oil price] could go up to $250 [a barrell] ... Anything could happen." Yikes!
Mr Duncan used to be an oil trader and knows more about that murky market than I do. Yet this column was bold enough three years ago to criticise Gordon Brown for flying off to Saudi Arabia to get them to flood the market when the price reached a peak of $160 a barrell: "There is not a shortage of crude oil. Inventories are at normal levels, worldwide. Have you seen any queues at petrol stations? Do you know of any? Are there any queues at gas filling stations in the US? Nope." The Independent is not so powerful that I can claim these words caused the dissipation of the great speculative oil panic of 2008; but dissipate it did, even though the Saudis did not do as Gordon Brown asked.
This time the panic does have some basis in political reality, in that there has been a slight interruption to the flow of Libyan oil, although nothing remotely close to a complete cessation of its normal production rate of 1.6 million barrels a day. This time, however, the Saudis have immediately offered to cover any shortfall, which they are more than capable of doing, given that they have spare productive capacity of at least 3.5 million barrels a day. Indeed, these Saudi assurances brought the price tumbling back from $120 a barrel to its current level of around $105.
It is, of course, fear that the Saudi regime might fall to some popular uprising which lies behind much of the current panic – and Mr Duncan was using that fear to argue that Britain should keep quiet about human rights abuses in the desert kingdom: "I don't think we want to take military action so women can drive in Saudi Arabia."
Yet if there were a popular uprising against the absolutist monarchy, why is it always supposed that this, beyond a brief period of chaos and regime change, would lead to a sharp drop in oil production? Any plausible new government would need to retain the support of the people. It would not be able to do that by decimating the country's living standards, which would assuredly happen if it were deliberately to squeeze its own commercial lifeblood. Indeed, across the oil producing Middle East, governments threatened by popular discontent are engaging in desperate cash handouts, which they can afford only by keeping the oil flowing.
It is true that there was an oil price shock in 1979, after the Iranian revolution. In practice, however, even during the American hostage crisis, the mullahs continued secretly to sell oil to the US, through the devious routes created by the notorious trader Marc Rich (for whom Mr Duncan once worked, funnily enough). Today, in fact, the reason why the Americans don't buy oil from Iran is not because of any action by the Islamist government, but because the US itself is operating a sanctions policy against Tehran.
So here's another disaster scenario, of the sort mooted by Huhne and Duncan: what if two of the biggest Middle Eastern oil producers went to war with each other? Wouldn't that wreck the entire western oil-dependent economy? Wouldn't we all be reduced to riding Boris bikes, or (for those of us in the sticks) horse and traps?
Such a war actually happened in the 1980s, and we were barely inconvenienced. At that time Iran and Iraq were engaged in all-out conflict: two major Persian Gulf exporters directly targeted each other's oil facilities and Iran even attacked oil tankers from Iraq's ally Saudi Arabia. Yet after an initial rise of about 25 per cent in the oil price, it became clear that the interruption to supplies was insignificant, and the price of oil dropped steadily during the six years of warfare between the two producers.
That's all very well, say the insistent forecasters of Armageddon: but if the West ran out of oil for even a very short period, we could still suffer enormous economic pain, and at a time when thing are not exactly rosy. Old hands will recall with a shudder the Saudi oil embargo of 1973, when the kingdom stopped selling its crude to countries which supported its then enemy, Israel: the result was indeed, queues at the petrol pumps in Europe and the US. In fact the Saudis very soon repented of this measure, once they observed that other members of the Organisation of Petroleum Exporting Countries, while ostensibly supporting the idea, were in fact only too keen to make up the shortfall themselves and gain market share.
Yet that oil embargo did have one permanent effect, which was that the major oil-importing countries vowed they would never again allow themselves to be blackmailed in this way. The OECD nations, through the International Energy Agency, began to create a vast cushion of oil stocks. This reserve is not designed to be released just because the market has got into a speculative frenzy, which is why it was not activated when the crude price peaked in the summer of 2008. Very sensibly, it can be drawn down only when there is a genuinely severe disruption of supplies.
Currently, the IEA holds emergency stockpiles equivalent to at least three months of total oil imports. To put that in the perspective of the current imbroglio in North Africa: the Western governments' strategic petroleum reserve equates to about 1,000 times the size of Libya's entire pre-crisis daily output. Thus the IEA's executive director, Nobuo Tanaka, was last week able to point out: "We can release 2 million barrels per day for two years. We don't really have to worry too much about the supply side."
This might not come as much of a relief to British motorists already paying 130p for a litre of petrol; but I do urge them not to become completely hysterical, when reading Mr Duncan's direst prediction that we could "be paying £4 a litre for petrol ... £1.30 at the pump could look like luxury".
The interesting question is why so many seem to have a stake in terrifying the public. Different people have different reasons. For Chris Huhne, it is to persuade us to shift to renewable sources of energy (although his vision of electric cars powered by wind energy could lead to a situation in which only multi-millionaires like him would be able to afford to drive at all). More generally, British politicians like to disguise the extent to which high domestic oil prices are a function not so much of Arab greed but of the enormous taxes they themselves impose on petrol at the pump.
Meanwhile, in America there is an agriculture lobby which aims to secure even vaster subsidies through the promotion of corn-based ethanol as a substitute for imported oil; and there is also a gigantic US military establishment predicated on the idea that Middle Eastern oil supplies are perpetually at risk. No doubt it is necessary for governments to prepare for the worst; on the other hand, they should be able to trust us with the truth.