TOM BOWER: The scandal behind these soaring prices

With such astronomical increases coming on top of a credit crunch, economists are talking seriously about the prospect of recession and, even worse, stagflation  -  the lethal combination of inflation and economic stagnation last seen in the 1970s and early 1980s.

We are told it is all due to a world shortage cause by soaring demand for oil from China and India, and that we can expect record petrol prices to continue for eight years.

Traders work in the oil pits at the The New York Mercantile Exchange in New York

But is this really the case? Nowhere in the world are people queueing at petrol pumps; there are no power blackouts and no idle tankers are waiting in the Gulf for oil.

On the contrary, oil storage tanks across the world are full, super tankers are queuing at ports to unload and no major oil field is closed. Across the world, 86million barrels of oil are produced every day which at the moment is sufficient, not least because consumption in America  -  which burns a quarter of the world's supply every day  -  is actually declining.

Alarmists also say that the world's oil supplies have passed their 'peak', that the world has consumed half of all its oil and that the remaining 1trillion barrels will be gone by 2025.

This is quite simply tosh. BP's experts and others insist that at least 4trillion barrels of oil are ready to be extracted and there are certainly many more trillions to find, not least in the Arctic and across the Atlantic.

No one it seems is willing to proclaim-the truth: there is no oil shortage. The fact is that we are all being forced to pay an artificially high price because of a combination of factors.

First there is the greed of the oil traders, bankers and speculators in the world's financial centres who are pocketing billions from our misery.

Then there is the venality of oil-producing countries whose economies profit massively from artificially keeping the oil price high.

And next there are the scare stories  -  from hurricanes heading for oil rigs in the Gulf of Mexico, power failures in Iraq or an oil pipeline being blown up in Nigeria  -  that these two groups exploit together in an unholy alliance to push the prices up.

There is no question that speculators-employed by Wall Street's hedge funds, pension funds and banks, have used the scare stories to drive up prices.

On top of this OPEC  -  the organisation of the world's major oil producers  -  stands accused of slyly engineering the crisis in order to drive up prices.

The claim, made by both President Bush and Gordon Brown, is that OPEC is a self-interested cartel which is refusing to increase oil production and bring down prices.

Producers have learnt the lessons of history. They know only too well that it was Britain's North Sea oil that destroyed OPEC's first cartel during the 1980s; and that, in 1998, their economies were ruined when prices plunged to $8 a barrel after OPEC responded to the West's demand for increased production.

Admittedly, circumstances have changed since then. For the first time, China and India are aggressively competing for oil from the areas which traditionally supplied the U.S. and Europe. Meanwhile, oil consumption in the newly enriched oil-producing states themselves is soaring as their populations explode.

But as oil prices rise, the oil-rich nations are deliberately refusing to allow western oil companies with the expertise and equipment to enter and build new wells.

The result of the conspiracy is awesome. Since oil prices started rising in 2003, the OPEC states amassed over $1trillion in so-called sovereign wealth funds.

Over the past four years, some of the oil region's economies have been growing at 20 per cent a year.

But it would be wrong of us in the West to despair.

Firstly, after inflation and the weak dollar is taken into account, oil is only marginally more expensive than during another oil crisis in the 1980s. Back then, the bubble eventually burst and prices collapsed.

Secondly, if Britain and other consumers quickly commissioned alternatives including nuclear power, renewable energy and environmentally acceptable coal-fired power stations, the oil producers would become terrified that their source of income was endangered.

So throughout the pain remember two things: all price bubbles burst, and there are still vast untapped oil fields which will supply the world's needs for centuries to come.

• Tom Bower's book The Big Squeeze about the oil industry will be published next year.