What could the relation be between Chinese economic growth, Saudi Arabia’s oil policy and your mortgage? The chances that oil prices will rise and stay above $40 a barrel in the short term are more than 50 percent. Much depends on the intentions of Saudi Arabia; if it decided to turn off the tap, we would see the disaster scenario coming true, with prices shooting up to $80 a barrel. But this is unlikely; the Saudis are more likely to be aiming at around $30 by the end of the year, when gasoline stocks have been restored, and provided the overheating Chinese economy manages to land safely. By then, anyhow, central banks will have made their decisions regarding interest rates. The Bank of England raised its basic rate last week and the Fed’s Alan Greenspan has already prepared the ground well to make the dollar more expensive to borrow. The European Central Bank also put to rest the last hopes for a lower basic rate for the euro. Now, they are likely to buttress the defenses against the possibility of rising inflation which has stubbornly remained at 2 percent; but a move is not expected before early next year. Right now, the main negative factor for oil prices is the continuing tension in the Middle East and the deepening impasse in Iraq, with US elections only a few months away. Predictions of a quick victory that would drive prices below $20 a barrel have been refuted; continuing attacks on pipelines, the Israeli-Palestinian conflict and the prospect of further terrorist attacks scare the markets and the repercussions reach our gasoline stations. Unhappily, it’s difficult for consumption to fall. After the big energy crisis of the 1970s, world consumption plummeted and returned to 1979 levels only in 1993. In the United States, this happened in 1997. Since then, however, world demand for oil has seen explosive growth. In the last 10 years, the rise in demand has been 12 million barrels a day – the combined production of Saudi Arabia and Iraq. The initial decline was achieved through energy-saving measures. Subsequently, however, high growth rates in less developed nations and delays in investment in new energy technologies led to the explosive growth in demand. China’s demand for oil has risen by 37 percent in the last four years and it now accounts for 8 percent of global consumption. If prices remain high without denting growth in the eurozone, the European Central Bank will almost certainly have to raise its rates. A rise of $1 in the price of a barrel costs air carriers $500 million, while a 0.5 percent increase in the cost of borrowing costs the Greek economy 500 million euros – a comparable sum. Mortgage holders will have to fork out about 150 million euros more a year. Much will depend on inflationary pressures in Europe, which will grow stronger if structural reforms do not make progress.