Most concern in the West so far about oil at $140 a barrel stems from motorists appalled at the spiraling costs of filling their cars. Pretty soon, those with air conditioned homes will face a similar kind of sticker shock when they see their electricity bills, and then Japan, Europe and North America will all reel this winter when they see the cost of heating their homes.
But there is another grim result of the oil price rise that threatens the great engine of world trade itself. Since 1970, world trade has been growing at a steady rate of around 7 percent a year, which means it doubles each decade, and has made most of the world very much more prosperous.
This great surge, which has helped fuel the steady growth on global GDP, itself expanding at an average 3.6 percent a year since 1970, is a result of the scraping of tariffs through free trade agreements. It has been spurred on by the coming of the container revolution and the cheap oil that fueled the world's giant container ships.
But that era of cheap oil and cheap international transport is over. That is why China's steel exports to the United States are dropping at a rate of 20 percent this year. China has to import the iron ore by sea from Brazil or Australia, make the product, and then ship it across the Pacific to the West Coast.
The shipping costs, which are adding a minimum $90 a ton to the final price, are making Chinese steel uncompetitive and pricing home-made U.S. steel back into the market.
Over the last three years, every extra dollar on the oil price has translated into a 1 percent rise in transport costs. To put it another way, every 10 percent extra mileage means a 4.5 percent increase in transport costs.
On a typical four-week sea voyage from China to North America and including inland transport it now costs around $8,000 to send a standard 40-foot container from Shanghai to the U.S. eastern seaboard. In 2000, it cost only $3,000 to ship the same container. If oil goes to $200 per barrel, it would cost $15,000 to send that container from China to New York.
China and other low-cost exporters are losing their price advantage. The good news is that manufacturers in Europe and North America can compete again. The bad news is inflation, and a slowing of the world trading system that will hurt the global economy as a whole. The Saudis may have acted just in time.