Expert view: So all the fuss about oil prices is just a lot of hot air. Oh really?

The four most dangerous words in financial markets are: "This time it's different." I ploughed through yet another economist's report last week arguing that surging oil prices were irrelevant. Triggered by the black stuff approaching $100 a barrel, it trotted out many of the same arguments used when oil broke the $75 barrier – that energy costs represent only 6 per cent of US manufacturing's cost base etc etc. It was an academic tour de force. It nearly convinced me. Then a man was murdered in China on Wednesday for jumping a petrol queue.

It was a choppy week in most markets but none more so than oil. The shock of US inventories dropping to 312.7 million barrels, a level last seen after Hurricane Katrina, could not have come at a worse time for already nervous traders. In Europe and the US this is expressed in inventory levels and market movements, but in the "controlled capitalism" economies that dominate world growth, acute shortages are expressed more painfully.

Seeking to control burgeoning inflation, emerging markets from China through India to Argentina have hit on fuel price controls. In India, none of the last 35 per cent rise in world oil prices has been passed on to consumers. But this has also meant that many small oil refiners have been wiped out – exacerbating tight supplies and shortages. Last week, China ordered a 10 per cent rise, but the queues tell you "market stifling" won't hold.

It is against this background that a crucial meeting of Opec's heads of states will take place in Riyadh in a few weeks. The cartel is divided into two camps – the hawks led by Venezuela and Iran, the doves under Saudi leadership. Never has the ongoing argument between these two groups been more important.

Central is the issue of supply imbalances. It would be easy to attribute the sharp moves of recent years to the huge rise in oil demand caused by Asian industrialisation. This is the line taken by the likes of the Qatari oil minister, who categorically denies there is a supply shortage. But even if this is true now, it seems worryingly untrue of any long-term projection.

The consensus in markets over long-term supply centres on the International Energy Agency's forecast of 116 million barrels a day by 2030. The US Government comes in slightly higher at 118 million. But Christophe de Margerie, the chief executive of Total, has made it clear that 100 million could well prove a production ceiling, leaving global markets worryingly in deficit.

The problem is the political factors that exist in so many oil producers, leading to falls in production. The security situations in Nigeria and Iraq are bad enough, but then consider how anti-Western sentiment has led to increasing energy nationalism and nationalisation, and the consequent withdrawal of sophisticated Western technology. Iran produces less than half the oil it extracted at the time of its revolution. Venezuela, despite massive and growing reserves, sees production fall year after year.

The oil consumers' response has been the usual mixture of bluff and bluster. The US called for Opec to boost production yet again last week, but one can imagine how much the hawks in Venezuela and Iran care about that. Much more likely to spur them into action would be real Western moves to restrict consumption or boost alternatives.

The coming week could see an important accord between the US and the EU on biofuels. US President George Bush has been a late convert in this area and the EU has set some proper targets: 5.75 per cent of transport fuel must come from biofuels by 2010, and 10 per cent by 2020.

But at the same time, so many of the expectations of "wonder fuels" do not stack up under to closer scientific investigation. The latest is jatropha. You might not have heard of this – a tropical plant previously grown only to treat malaria – but it is symbolic of the West's desperate clutching at straws.

The time has come for drastic action. Two political hot potatoes must be debated: a huge rise in US energy taxes to European levels, and a return to the fast-pace nuclear expansion abandoned in the 1970s. Ouch. Who says the oil price doesn't matter?

Christopher.walker@tiscali.co.uk