Until recently, there has been a constant refrain to the effect that Western economies seem undeterred by higher oil prices. Demand destruction does not seem to be taking place within OECD, even at today’s high numbers. The gist of the argument is that, compared to the situation in the 1970s, for example, oil is such a small part of GDP that the impact of energy prices is almost negligible. A lot of industrial demand destruction took place during previous periods of high prices, in the 1970s and 1980s. More recently, it has been taking place through the outsourcing to emerging economies of oil-intensive manufacturing.


The chart shows that in transport, where fuel costs are almost everything, these notions do not apply. The ratio of the Dow Transports to the price of oil, which you calculate by simple division, illustrates how profoundly the lowest oil prices of recent years (1997-1999) helped boost such transportation industries as railways, airlines, trucking and shipping. It also shows how negatively higher prices have affected transportation shares in the years since.