The importance of energy is not new; it is only in the process of being rediscovered over and over again. It is oil which constitutes the major part of the global energy-mix. Oil like most commodities is traded in the US Dollar (USD). The value of the USD and oil prices tend to influence each other. The main aim of this article is to assess the consequences of the latest upward trend in oil prices and the way it impacts the world economy and international monetary system.

Contrary to expectations higher oil prices have failed so far to generate excessive inflation and recession. But this does not imply that the current upward trend has gone unnoticed. The major OPEC members (oil producers) due to their absolute dependence on oil revenues are becoming important agents inside the international monetary system. Their increasing significance exerts influence on the way the US current account deficit is being financed. As oil is still invoiced in USD there are reasons to believe that the special relationship between the oil producers and the US current account deficit should be preserved. However preserving strong links between oil producers and the USD bears hidden costs as well. It makes the task of diversifying oil producers' economies more difficult. Therefore efforts undertaken by some oil producers to launch a currency union seem interesting. If this idea works in the long-run it may have an important impact on geopolitics.

The current upward trend in oil prices seems to be the longest in the history of this commodity. It started in early 1999 when oil prices bottomed out following long-lasting decline which began in the early 1980s of the previous century. There are lots of reasons for the price-hikes. The current trend is driven by the strong demand for oil coming from China India and the Middle East. Another important element behind this upward trend has to do with geopolitical issues. Those are linked to the enormous instability in the Persian Gulf ever since the US and her allies have occupied Iraq not to forget the many other looming battlefields in the Middle East. The geopolitical dimension is also related to the phenomenon of resource nationalism.

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