On July 5th, the international oil price leapt to $75 per barrel, which intensified people's anxiety once again. However, although the oil price rises time after time, this did not lead to the worldwide oil crisis which people were worried about. How are we to understand this phenomenon?

There is only a thin line separating high oil price and oil crisis, a line which could easily be stepped over. Whether an oil crisis will occur is dependent on three determinants: firstly whether the oil supply can be restored in a short term; secondly whether the oil consumer countries have the ability to pay and thirdly what the level of nominal oil price is. Judging from the current situation, there is no possibility of an oil crisis.

Both of the two oil crises in the history arose from oil supply shortages. Between 1973 and 1974, the period of the first oil crisis, OPEC, particularly Arabic petroleum exporting countries pursued the policy of "embargo, production reduction, and price raise", resulting in supply shortages. From 1978 to 1979, the period right before the second oil crisis, the Iranian revolution caused oil supply shortages which doubled the international oil price in 1979. In a later period, between 1980 and 1981, the Iran-Iraq war also caused a shortage in oil supply. The International Energy Agency launched an emergency mechanism, under which the Western oil-consuming countries took collective action to push down the international oil price quickly.

Rather than supply shortages, the current round of international oil price rise was mainly a result of weak dollar mechanism and the increasing demand for product under the economic growth. Fears of instability in certain areas is a secondary factor causing price fluctuations.

The soaring international oil prices put to test the countries' payment capacity. The so-called payment capacity refers to the capacity of oil-consuming countries in making up their oil trade deficit. From the world perspective, if the trade surplus of some oil-importing countries was insufficient to compensate for their oil trade deficit, which then influenced their payment capacity, it may cause the suspension of oil supply and the breaking down of dollar circulation in oil trade. If these countries borrow in the international capital market to maintain their capacity to pay, they may face debt crises. Fortunately, the situation of the world's current account deficits is much different from that of the previous oil crisis. The share of the current account deficit in GDP of the oil-consuming countries among developing countries is relatively small; among developed countries, except for the United States, the rest have considerable surplus in their current account accounts. Although the United States has a huge amount of debt, it has better credit.

There is one country that is worth mentioning in particular: China. As a big demand power, China is sharing a part of the costs for the world with its strong payment capacity. China has a large amount of current account surplus, therefore does not have the problem of insufficient payment capacity. Additionally, a large part of her foreign exchange reserves has been returned to the US market, which has promoted the normal circulation of US dollars and prevented the oil crisis from happening. With a good reputation and a strong payment capacity, China has made important contributions to the international oil trade balance.

The current high oil prices and the weak dollar currency complement each other. If excluding the effects of inflation and if calculating based on the constant prices in dollars, the highest international oil prices should be around US$ 80-90 per barrel. Even if the oil prices do rise to US$ 80-90 per barrel, it still won't have such a great impact on the world economy as it did before because of the wider use of energy-efficient technologies and the accelerating development of new energy.

However, the negative impact of the continuously growing high oil prices on the world economy can not be overlooked. It is in the interests of all the countries to maintain reasonable oil prices through international coordination and cooperation in energy industry, so as to ensure a smooth "blood circulation" of the world economy.

By People's Daily Online; The author is PhD student in economics of the Chinese Academy of Social Sciences