Last week’s warning from the International Energy Agency (IEA) that the surging cost of oil now represented a bigger risk for global growth than the European sovereign debt and banking crisis did not generate the publicity it deserved. Brent crude has jumped by 17% this year to USD 126 a barrel, essentially matching the high achieved a year ago; in mid-2008, Brent soared to a record high of USD 146.

According to the IEA, Europe is especially vulnerable to this most recent spike in the oil price. It is expected to import USD 502bln of oil this year, which represents 2.8% of GDP. The average price of oil this year in Europe is likely to be higher than it was in 2008 when energy costs were a major burden on the economy. Also, European households are expected to spend 11% of their disposable income this year on heating, lighting, cooking and personal transport, up from 9% in 2011.

In Asia, the likes of China, Japan and India are also being severely affected by the more expensive price of oil. Japan is burning a lot more oil to generate electricity these days, with 52 of the 54 nuclear power plants closed in the aftermath of the Fukushima disaster. China has recently lifted the price of both petrol and diesel significantly, which will crimp the spending power of households. Crude oil imports reached a record high last month, up 18.5% YoY. In India, the rising cost of fuel is again complicating the RBI’s monetary policy task, because inflation is climbing once more.

Recognising that oil prices at these elevated levels represents a serious economic and financial risk, some of the major players are responding. Saudi Arabia vowed to increase production if necessary, and has described the current price of oil as excessive given the significant inventories of oil and the weak state of global demand. The world’s largest producer is pumping nearly 10m barrels of black gold per day, the highest in decades. In the US, President Obama is at least thinking about releasing oil from strategic reserves, and is suddenly very keen on expanding America’s oil infrastructure.

It is clear that there is a premium in oil prices of perhaps USD 15-20 because of the tensions and sanctions imposed on Iran. That said, even if this premium was removed (which seems very unlikely in the near term), the oil price would still be quite elevated and therefore represent a burden on global growth.

Right now, the major advanced and advancing economies are definitely suffering from the high price of energy. Indeed, in some instances, it may be enough to tip some of these economies back into recession.