In 1972, when the first major oil crisis erupted with the Arab and middle-eastern oil producers putting an embargo on crude oil sales, it wreaked havoc on oil prices, which almost overnight increased four-fold-from $3 to $12 (Rs 144 to Rs 576) a barrel-leading to a major recession in 1973-74. Years later in 1991, when Iraq overran Kuwait and the US stepped in, it resulted in the second oil crisis, when oil prices again shot up. Cut to 2003. The US is on the verge of waging a war against Iraq and the mood in the Middle East is nervous. Should we then be apprehensive about oil prices and what their movement may mean for the global economy?

Probably not. True, the Gulf still accounts for around 40 per cent of the world's output of crude oil and there are fears that a war, coming at a time when the Venezuelan national oil company, PDVSA, is grappling with a major strike, may force oil prices to touch $40 (Rs 1,920) a barrel or more (up from the current level of around $38.

Yet, no one seems to be losing sleep over it. Why? Because oil as a political weapon has lost its menacing edge. Unlike in the earlier years, in the event of a war, it is only Iraq, which produces merely 2 per cent of the global demand, and not the other member countries of the Organisation of Petroleum Exporting Countries (OPEC) that may put an embargo on oil sales. Their economies are too dependent on oil sales to push them into such a decision. In fact, countries like Saudi Arabia have already publicly announced that they will make up for any shortfall, arising from an embargo. Fears about another oil crisis would have escalated had some other oil producers in the region joined Iraq's cause, as they did in 1991. After all, the region produces as much as 25 million barrels (of the world's consumption of 78 million barrels) a day. But with none of these countries inclined to rally behind Iraq, the clout of the oil producers is a benign rather than a threatening one.

Another reason why world markets have discounted the effect of a war with Iraq on oil prices is because the dependence on oil as a driver of global economic growth is far less today than it was in the 1970s because the developed world depends more on the services sector to spur growth rather than on the manufacturing sector. Also, the past crises have made most countries wiser: they maintain strategic oil reserves that they can draw from in case of emergencies.

There is a third reason for the absence of panic. Even if war was to spread from Iraq to other countries in the region, today, unlike in the 1970s, there are other oil producers to fall back upon. Russia, for instance, already produces more than 7.6 million barrels of crude oil a day and hopes to increase that steadily to 8.2 million by end-2003. And even though crude output from the North Sea is declining, it is still quite substantial enough to meet immediate needs. Plus, there are other oil producing nations from other regions making their contributions-Canada, China and Mexico, to name some.

Even for economies that are largely dependent on oil imports like India, there are spot markets where they can buy crude off the shelf. Malaysia is one such market. No wonder then that India's petroleum minister Ram Naik last fortnight allayed fears of an impending oil crisis in the event of an US attack on Iraq. Not only can India draw on its strategic petroleum stocks (equivalent to two months' consumption) but it has also made contingent arrangements to buy oil from countries that are not in the war zone.

But price, not availability, may be what matters for developing countries like India, which imports 74 per cent of its oil requirements. Last year, the bill for India's oil imports was $12.7 billion (Rs 61,000 crore). And a $1 (Rs 48) increase in oil price can raise India's oil bill by $1.7 million (or Rs 8.16 crore) a day. Yet there is some salvation in the fact that India's foreign exchange reserves are bulging at $75 billion (Rs 360,000 crore), a potential buffer against sharp increases in oil prices.