If they materialise, the scenarios could have dramatic consequences on economic development in energy intensive economies in the developing world as well as on transition economies. On the other hand, they would make the mass production of biofuels and coal based synfuels inevitable.

The DIW's prognoses have sparked controversy in Europe, but the institute defends its position, saying sound projections are key to energy policy makers:

It is the task of economists to analyse medium-term trends in energy prices. [Our] scenarios are plausible and based on sound economic research. This is not about the magic of single numbers for future oil and gas prices. What really matters is whether German and European energy policy has designed preparedness plans to deal with the eventuality of very high energy prices. - DIW spokesperson Carel Mohn

The DIW's chief for the department of Energy, Transport and Environment, Professor Claudia Kemfert, further clarified the rationale behind the projections:

Scenarios covering 15 to 20 years are what they are: scenarios that could materialize, but that are meant not to do so, because they allow policy makers to develop counter-measures. Oil is not scarce yet, but will become so, because of rapidly growing demand of booming transition economies. Without a 'Moving away from Oil'-strategy, economies and societies will be too vulnerable to supply disruptions and high prices.

Professor Kemfert adds that the most recent surge in oil prices which drove the price to records was due to speculative buying. The share of the oil price attributable to speculation is likely to be around 20 percent today, adding that the price was likely to reach $105 in the coming weeks. But speculation will soon make way for the reality of the growing incapacity of suppliers to physically meet demand. The effects of a possible peak in oil production - signalling the irreversible end to the oil era - could begin to be felt as early as 2020.

In 2007 the price of oil jumped 57 percent due to the weak dollar, worries about oil reserves and world political turbulence, said Kemfert:

The DIW and other experts don’t expect the oil market to calm down anytime soon. “We find it difficult to contemplate any scenario which doesn’t see annual average prices going steadily higher,” commented Kevin Norrish, an analyst at Barclays Capital.

The immediate cause for this week’s rise in oil prices was a US Energy Information Administration report due out Thursday. It is expected to show a drop in US crude inventories, which would be the seventh consecutive weekly decline. Violence in Nigeria and port closures in Mexico resulting from bad weather likewise have oil traders nervous.

The German Institute for Economic Research is one of the EU's leading research institutes. It is an independent, non-profit academic institution which is involved in basic research and policy advice. DIW Berlin was originally founded in 1925 as the Institute for Business Cycle Research and was later renamed to German Institute for Economic Research.

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