Crude oil futures breached the psychological benchmark of $100 a barrel at the beginning of 2008. Given the world's declining oil reserves and growing oil demand in emerging countries, oil prices will remain high for a long period to come.

But short-term price hikes since last year are abnormal at any rate. That is because the relationship between oil supply and demand has not changed greatly in recent years. Global oil supply may even have exceeded its demand, as evidenced by the fact that the oil stockpiles around the world have surged and well surpassed average levels in the past few years. International oil prices, therefore, should not have risen as sharply despite geopolitical concerns such as the Iranian nuclear issue and the growing energy demands of China and India.

Now that oil price hikes are not justified from an economic perspective, there must be non-economic factors behind them. In light of the political background of the international energy market, we find the United States is a major underlying factor. It should be noted that the U.S. dollar has weakened along with the increase in oil prices in the past couple of years.

This strange phenomenon is a result of Washington's "weak dollar" strategy. Washington has taken the initiative in allowing the dollar to depreciate partly to reduce its trade deficits and partly to deal a blow to the dollar's major rival--the euro. This strategy, however, is bound to result in oil price increases, because all oil-exporting countries denominate their oil in dollars.

Small wonder then that the United States, the world's largest oil consumer, takes oil price increases lightly. Both the White House and the Treasury Department have reaffirmed that the U.S. Government will not tap the Strategic Petroleum Reserve to rein in oil prices, a sign that Washington is completely unfazed by the exceptionally high oil prices. An ulterior motive for the United States to drive oil prices higher is that it wants to contain China's emergence by increasing the costs of its economic development.

China's development is the most important event in the contemporary world. U.S. policymakers believe that they should at least hinder its progress if unable to reverse the trend. They have two approaches to containing China's rise economically. The first is to force the country's currency--the yuan--to appreciate, thereby affecting China's export and making its economy less competitive. The move also would prompt global hot money to pour into China, fueling its liquidity excess and driving up its asset prices.

The second is to keep oil prices high to increase the cost of China's economic development and slow down its economic growth. U.S. policymakers have tried both approaches. Compared with the exchange rate of the yuan, which is a sovereign issue for China, oil prices are easier for the United States to control. If China refuses to allow the yuan to appreciate or cannot meet its demands on the margin of appreciation, the United States can resort to the second approach to undermine the Chinese economy.

Isn't the United States afraid that its high oil price strategy may backfire? After all, the United States is more dependent on foreign oil markets than China is. It is, of course, afraid. The U.S. Department of Energy decided to increase its Strategic Petroleum Reserve to more than 700 million barrels after oil hit $90 per barrel. But U.S. economist Philip Verleger believes this move is the major cause of the high oil prices in the past several months.

Confident and adaptable, the United States can limit the impact of high oil prices. It has gained experience in dealing with such risks from the two oil crises in the 1970s and 1980s. It also has adjusted its industrial structure and energy mix in a timely fashion, making the hi-tech and service sectors major contributors to its economy.

Over the past decades, the U.S. energy expenditure as percentage of gross domestic product has declined considerably. Statistics show that it dived from about 15 percent in 1981 to some 7 percent at present. Considering these factors, climbing oil prices today are unlikely to plunge the United States into economic recession. Even if the high oil prices were to jeopardize the interests of American consumers, they could receive compensation from the overseas business of U.S. oil giants that operate across the world.

By contrast, China is highly sensitive to high oil prices given its current industrial structure and energy mix. High oil prices have more severe consequences for China than for the United States. China's economic and energy structures have made it possible for the United States to capitalize on its high oil price strategy.

In terms of oil futures, the Chinese market has the following defects: First, imported oil accounts for more than 40 percent of China's annual oil demand growth, making the country a major target of international speculators. Second, China's strategic petroleum reserve currently equals about 10 days' consumption. It will have to purchase much crude oil to fulfill its goal of boosting the strategic reserve to 90 days' consumption, a strong signal to global oil speculators. Third, China lacks professionals specializing in oil futures trading. It does not have a good command of financial futures such as foreign exchange futures as well. As a result, China is extremely vulnerable to speculative international capital. Some of China's industrial policies have also fueled its energy demand.

Along with China's breakneck economic growth, its dependence on energy has grown and will continue to increase in the future. Statistics form the China Petroleum and Chemical Industry Association show that the country's dependence on foreign crude oil reached 46.25 percent from January to November 2007, compared to 43.23 percent in the same period of 2006.

From January to November 2007, crude oil imports caused a trade deficit of $70.1 billion for China, an increase of $10.7 billion or 18 percent from the same period of 2006, according to statistics of the China Customs. As China continues to spend lavishly on increasingly pricey crude oil, the wealth created by the Chinese people will be relocated to oil-producing countries and oil speculators.

Worse still, runaway prices for oil, a basic source of energy, will aggravate China's risk of inflation. They will not only lead to increases in the prices of processed oil products such as gas and heating oil, but also inflate production costs for manufacturers and push up prices for their products. China's inflation levels have hit a record high in the recent decade. Although increases in food prices are mainly responsible for this round of inflation, imported inflation is also a major concern, and its effect on China's economy is projected to become more pronounced with the passage of time. Imported inflation is mainly generated by rising international oil prices. Over the long haul, continued increases in international oil prices will heighten China's inflation pressure and lower people's living standards.

Without a doubt, high oil prices, which can have little impact on the U.S. economy, will result in severe consequences for China's economy and society.

(The author is a senior editor at Study Times, a journal published by the Party School of the Central Committee of the Communist Party of China)