Wednesday 19 June 2019 4:02 am A big hike in the oil price today would cause problems. But at least the script is familiar, and it would accelerate carbon reduction. This is the decade in which Jeremy Corbyn’s ideas were formed. He bathes in its rosy glow with fond nostalgia. Looking back, there was a silver lining. It is not a coincidence that this was the decade in which future Nobel Laureate Bill Nordhaus began his lifelong mission to integrate energy and climate into economic models. TOPSHOT – A picture obtained by AFP from Iranian news agency Tasnim on June 13, 2019 reportedly shows an Iranian navy boat trying to control fire from Norwegian owned Front Altair tanker said to have been attacked in the waters of the Gulf of Oman. – Suspected attacks left two tankers in flames in the waters of the Gulf of Oman today, sending world oil prices soaring as Iran helped rescue stricken crew members. The mystery incident, the second involving shipping in the strategic sea lane in only a few weeks, came amid spiralling tensions between Tehran and Washington, which has pointed the finger at Iran over earlier tanker attacks in May.Subject : IRAN OIL TANKER 5 (Photo by – / TASNIM NEWS / AFP) (Photo credit should read -/AFP/Getty Images) whatsapp If you’re panicking about a spike in oil prices, look to history for a silver lining City A.M.’s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M. But what if the conflict escalated and oil prices really did go through the roof? The experience of the UK certainly merited that description. Inflation soared to more than 20 per cent. Unemployment trebled, to the then incredible level of over a million. Strikes plagued the economy. The nationalised industries were worse than useless. It could easily take six months for the state-controlled telephone company to install a landline. We’ve actually been here before, in 1973/74. Then, Opec flexed its muscles and the oil price rose four-fold. Today, that would mean the price rising to well over $200 a barrel. Opinion One of the characters in the popular American comic strip Doonesbury once described the 1970s as a “kidney stone of a decade”. Share There is little chance of inflation surging in a similar way today. The massive increase in the oil price induced firms to start to move away from reliance on oil. It gave market incentives to invent, fund, and develop new low-carbon products and processes. Paul OrmerodPaul Ormerod is an economist at Volterra Partners LLP, a Visiting Professor in the Department of Computer Science at UCL, and author of Against the Grain: Insights of an Economic Contrarian, published by the IEA in conjunction with City A.M. The oil shock in the 1970s came at a time when the institutional structures created by America in the aftermath of the Second World War were already crumbling. This effectively ended in 1971, when President Richard Nixon terminated the convertibility of the US dollar to gold at a fixed price of $35 an ounce. whatsapp The tanker attacks in the Gulf of Oman have raised fears of a sharp increase in the price of oil. In the early 1970s, the inflationary pressure already existed. The inflation rate in 1973, prior to the oil price increase, was eight per cent in the UK and seven per cent even in Germany. Ted Heath had approved a scheme – which seemed lunatic even at the time – that wages would rise, not every year, but every month in line with prices. Rapidly rising inflation was built into the system. The Bretton Woods agreement of 1944 imposed fixed exchange rates on the western world. Devaluations were few and far between, and countries were expected to focus their monetary policies on stabilising the exchange rate. These are currently being offset by worries about a slowdown in the world economy and a drop in the demand for oil. There are parallels in the world of today. The long-standing trend towards freer trade, for example, has been brought into question. The oil price rise transferred, in the short term, income from the west to the oil producers. So a shallow recession would be more or less guaranteed. However, the oil producers eventually have to spend their increased income, and opportunities are created.