Oil prices are rising again, this time in response to the death of King Fahd of Saudi Arabia. His death reminded world oil markets about the troubles faced by Saudi Arabia, including a weak and unpopular ruling elite and a rising young population that is susceptible to fundamentalism.

Last month it was storms in the oil-producing Gulf of Mexico that unnerved markets. The election of a fundamentalist president in Iran as well as some muscle flexing by Venezuela's President Hugo Chavez have also caused oil price jitters. None of these concerns relates directly to the actual supply of and demand for oil. In theory, these are the only two factors that should bother world markets.

In terms of fundamentals, evidence suggests that recent price rises are temporary and may fall back somewhat. A Reuters poll of key analysts published last month forecasts oil prices to average $52.11 over 2005 - compared with $41.47 in 2004 - and then fall back to $47.70 during 2006. In nominal terms, the oil price levels of today are not as scary as they were in the early 1980s. In 1981, for example, the price of a barrel of Brent crude oil rose to around $39. A pint of stout, another black liquid essential to our economy, then cost around £0.35 or €0.45 in today's currency. The recent per barrel oil price of $60 compares with € 3.80 for a pint of stout.

So while stout prices (admittedly a crude proxy for the cost of living at least for most of us) have risen by a factor of eight, oil prices have less than doubled.

Also, whereas the 1980s oil shock was exacerbated by irresponsible economic policies, today's policy regime is robust and flexible. And we are developing alternatives to oil as a source of power.

Recent oil price increases will nonetheless affect most western economies, but in the longer-term. On its own the oil price increases will cause a mild loss in competitiveness for Irish industry. The more severe and immediate impact may be on the prices faced by domestic consumers of electricity.

Ongoing oil prices on world markets raise the prices of oil - and gas - which together constitute one quarter of the ESB's operating costs. Last month the Commission for Energy Regulator recommended that the ESB increase electricity prices by no more than 2.5 per cent next year.

But an earlier report by the regulator suggested that rise in the price of oil and gas could cause ESB bill increases of up to 36 per cent. The final figure will be determined later in the autumn.

The economic impact of recent events on oil markets is likely to be negative, but only modestly so. The political impact might be stronger, however.