Hurricane Katrina and the Gulf of Arabia

The release of US Strategic Petroleum Reserves and International Energy Agency emergency supplies underlines just how serious the mounting energy crisis in the US has become after Hurricane Katrina's devastation of New Orleans. It may become very much worse with eight US refineries out of action, although damage assessment is still in progress.

This response by Governments may have lifted oil prices off the $70-a-barrel mark but the crisis is not over by a long shot. The situation of global supply and demand in relation to oil products is at its most precarious in decades.

The slightest whiff of another interruption to supplies - and there is a long list of potential hazards around the globe - and oil prices will spike to maybe $100 or more. At these levels global stock and capital markets would take fright turning the energy crisis into a financial crisis.

Where does this leave the Gulf of Arabia and the Oil States? Awash with cash is the immediate answer. But this is not prudent business. It is sound business to keep customers afloat, not to push them under, if only because you want them to keep paying.

But we have been here before. All the previous oil price booms - without exception - ended in a recession in the industrialized world.

Over summer the major capital markets drifted merrily along, and even moved higher, preferring to ignore the obvious warning signal of a very high oil price. Now the price of complacency for those long on stock and short of cash is likely to be a high one.

There is not much the Oil States can do to help, as additional crude is not the answer, and nobody has the refinery capacity to correct the supply shortfall. A recession will do this job instead.

However, Oil States might be well advised to look at how to invest in refinery capacity for the future. Having the raw resource in abundance is no use without the ability to turn black gold into something of practical value, such as gasoline.