Petrol prices are already up, air fare surcharges are being introduced, and as businesses, particularly in manufacturing, revise profit projections, jobs could be at risk. Next winter we will be paying more in heating bills.

As the price of oil affects so many everyday items from food packaging to cosmetics, the cost of the average shopping basket will rise. The ECB has warned that inflation is at risk and that could help to push up interest rates, thereby affecting mortgages.

In some ways, little has changed in the 30 years since the last major oil crisis of the 1970s. The Middle East is in turmoil and still controls about two-thirds of the world's oil supply. When the Organisation of Petroleum Exporting Countries (Opec) cut off oil supplies to the US in 1973 in retribution for its support for Israel in the Arab-Israeli war, economic havoc ensued for the guts of a decade.

Thirty years later, Opec believes current prices are too steep and the rise to over $75 a barrel is not justified by market fundamentals. Once again geopolitical issues are driving the prices.

Concern that Iran's nuclear row with the West could affect oil exports from the world's fourth-largest producer, and the continuing Nigerian supply outage, have sparked the panic. The problem is that these circumstances are not going away. The factors driving the price upwards are not changing.

Demand is increasing, spare capacity is slim and political instability is continuing. As long as there is no end in sight, the ?risk premium" on the price of oil will continue.

But regardless of political instability, the reality is that over the coming decades the world simply cannot produce enough oil to meet demand. In 1977, then US president Jimmy Carter said the diagnosis of the US energy crisis was quite simple: demand for energy was increasing while supplies of oil and natural gas were diminishing. Last week, Matthew Simmons, who was President Bush's top energy adviser, said pretty much the same thing at the University of Limerick.

Reassuringly, in an interview earlier this month, Christophe de Margerie, incoming head of the French energy multinational Total, made the point that the problem is not oil reserves, but the capacity to produce oil.

He took the example of Qatar, where 100,000 people are working in oil production and need a new power plant just to supply a city of contractors.

The Group of Seven leading economies this weekend increased the pressure on oil-producing countries to increase output and said they must look at their production quotas. But Algerian oil minister Chakib Kheli says oil markets are well supplied and that Opec can't do anything about world politics.

The good news is that the oil reserves are there. But producing those reserves to match ever-growing demand, particularly from growing economies such as China and India, is still a problem.

We simply cannot afford to explore our energy options piecemeal, in an island economy on the periphery of Europe. To become less dependent on oil, we must devise workable strategies. This means long-term changes . . . energy conservation and increased use of alternative energy sources. Tax incentives and rebates to promote alternative energy must be further explored. Our future growth and prosperity depend on getting this right.