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OIL is emerging as a potential threat to the global recovery.
Crude prices are currently hovering around $US80 a barrel, more than double the low of about $US30 that was plumbed in the darkest days of the financial crisis, and last week the International Energy Agency bluntly warned that "the recent price spike, if extended, risks derailing the recovery".
The risk is that rising oil prices will stoke inflation across the developed world, which is struggling for positive growth.
The inflationary pressures will be worst in fuel-sensitive sectors such as transport, food and manufacturing.
Sustained consumer price inflation would make it extraordinarily difficult for central banks in countries such as Britain, Japan and the US - where official interest rates are near zero - to start tightening monetary policy.
The risks are double-barrelled. If central banks fail to move in the face of oil-driven inflation, there is a danger of runaway inflation, which could be accompanied by sharp falls in currency values.
But if rates are shifted to combat oil pressures, central banks risk killing any nascent economic recovery.
This could result in stagflation, where asset prices stagnate even in the face of rampant inflation.
So why are oil prices rising? Most economists attribute the rising demand for crude to the start of an economic turnaround in most developed nations and very strong demand from China. This is being exacerbated by the steep fall in the US dollar - and with oil denominated in that currency, the rise also reflects a compensatory effect for it.
After a fall in demand during the depths of the crisis, the IEA now expects global demand for oil to be 84.2 million barrels a day this year and more than 86.2 million barrels a day next year.
Then there is the looming problem of Peak Oil - the stage when demand outstrips the world's capacity to produce it.
In September, a Macquarie Bank report found we had already hit that wall. Report author Iain Reid says production capacity will peak at 89.6 million barrels a day this year. By 2012, demand will exceed this.
"Capacity has pretty much peaked in the sense that declines equal new resources," he told news agency Reuters.
"Adding sufficient productive capacity on time is nearly impossible."
The problem with evaluating Peak Oil is the wide divergence of opinions about supply and production.
This was highlighted this month with a report in Britain's The Guardian newspaper in which a whistleblower claimed the IEA had been underplaying a looming shortage for fear of triggering panic buying.
The whistleblower claimed that the US has put pressure on the IEA "to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves".
"Currently the IEA forecasts that world production will be lifted to 105 million barrels a day by 2030 - even though production from existing fields is forecast to more than halve from roughly 70 million barrels today to some 30 million barrels in the same period," they said.
"Many inside the organisation believe that maintaining oil supplies at even 90 million to 95 million barrels a day would be impossible, but there are fears that panic could spread on the financial markets if the figures were brought down further.
"And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources."
Australian policy makers (with the notable exception of the Queensland Government, which established an oil vulnerability task force several years ago) appear reluctant to listen.
It went unreported in the media this week, but on Wednesday Greens deputy leader Christine Milne noted in the Senate that: "Neither the former Howard government nor the Rudd Government implemented the first recommendation of the 2007 Senate Rural and Regional Affairs and Transport Committee report into Australia's future oil supply and alternative transport fuels."
This recommendation was that Geoscience Australia, ABARE and Treasury reassess both the official estimates of future oil supply and the "early peak" arguments and report to the Government on the probabilities and risks involved, comparing early mitigation scenarios with a business-as-usual approach.
She called on the Government to "develop a national plan to respond to the challenge of Peak Oil and Australia's dependence on imported foreign oil". The motion was defeated 31 votes to six.
The most basic logic should tell us we can't continue to increase the exploitation of a finite resource indefinitely.
