World economic growth has slowed down in the wake of oil price rises. Analysts have pointed out that high oil prices will have at least two major negative effects on the world economy. They may rein in personal consumption, thereby hindering world economic growth as a whole. Because oil prices are a barometer for energy prices, they may also lead to mounting expectations for price rises of other energy sources such as coal and power.

Under the impact of high oil prices, major stock markets across the world have plummeted. A recent UN report predicts that world economy growth will fall sharply to 1.8 percent this year from last year's 3.8 percent because of the oil price rises and the U.S. subprime mortgage crisis.

Rising oil prices have contributed to the growth of the inflation rate, reducing people's real incomes and mounting enormous pressure on businesses and residents. Today, an inflation rate of more than 10 percent is commonplace in developing countries. Worse still, some poor countries have been plunged into political turmoil. Residents and businesses in the developed world are also suffering direly. Since the beginning of this year, the inflation rate has reached some 5 percent and 3 percent in the United States and Europe, respectively. High oil prices have a negative impact on oil producing countries as well. Despite its bulging fiscal revenue, Russia has to strictly control government spending to curb inflation, arousing the discontent of its citizens. Thousands of Russians took to the street on May 1 to protest against food price hikes and rising costs of living.

Rising oil prices may hinder the progress of economic globalization, having forced many countries to reduce or cancel gas subsidies. As transportation costs rise, countries tend to shift to regional trade. The political implications of this shift as well as the rising costs of doing business may result in a major step backward in the globalization process.

Energy diplomacy

All countries see great value in energy diplomacy as they strive to safeguard their energy security and stability. Given the skyrocketing energy demands and soaring energy prices today, energy producers, consumers and transporters are engaged in increasingly fierce contention over control of oil and gas resources and their transportation routes. As a result, the role of energy in international political and economic affairs has grown. In a sense, it has outweighed the military factor to become a frequently used political lever.

Energy always tops the agenda of important bilateral meetings. For example, at the annual EU-U.S. Summit, held in Slovenia on June 10, the two sides agreed to strengthen their technological cooperation to promote the use of bioenergy, clean energy and renewable energy. They also agreed to work more closely with countries by the Black Sea, Central Asian countries and Iraq to diversify the sources of their energy supply. Energy is a focal issue in multilateral forums as well. This year's G8 Summit held in Hokkaido, Japan, on July 7-9 focused on discussions about rising food and energy prices to lessen their impact on the international market.