During the past week, the surge in oil prices continued with crude, gasoline and diesel prices all hitting new highs.

The great irony in all this is that the problem is simple to understand. World crude oil production has been essentially flat for the last three years while 1.3 billion Chinese, 1.1 billion Indians, and another quarter billion or so living in oil exporting countries continue to increase their oil consumption at a prodigious pace. Incidentally, the Chinese just announced that their diesel imports during the first quarter of 2008 were up seven fold over 2007.

Last week the price of crude oil broke new records, running about $110 a barrel. That’s well above the previous record (in inflation-adjusted dollars) reached in 1980 after the revolution in Iran resulted in the nationalization of its oil.

Since tanks of crude are full to brimming, many traders in oil markets suspect that $110 could be the top price for now. But a growing number of oil-market analysts reckon the supply of oil to the world economy has reached a peak or is about to. The discoveries of new oil are now exceeded by the output of old oil. At some point, global oil output will start to decline, as happened in the United States in 1971.

Matthew Simmons, who is known mainly for his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, is in Dubai this week to hobnob over lunch with big names in oil, gas, investments and banking.

While Simmons is the founder of an investment banking practice, what he’s most known for is his stance that peak oil is not only imminent, but upon us. “Price has no impact on slowing demand,” he told Texas Monthly magazine earlier this year. “We’ve seen a stealth growth of 18 million barrels a day, while the demand between the end of 1995 and last week went up tenfold.

The costs of food and energy are rising fast. The availability of water is also becoming an issue, from Australia to Africa. The struggle for these three basic commodities – food, energy and water – came up repeatedly in Davos.

Globalisation – in particular the rise of China and India – is driving a lot of these changes. The world oil price has risen by 80 per cent over the past 12 months and – since 2001 – China alone has accounted for about 40 per cent of the increase in oil demand. Global food prices have gone up by about 50 per cent this year. There are short-term reasons for this, such as a drought in Australia and pig disease in China. But the biggest long-term driver of increased prices is growing wealth in China and India.

If you think $100 per barrel oil is costly, consider $180 per barrel oil.

The former is here, while the latter may be in our not-too-distant future, according to two well-known oil industry analysts.

While energy prices retreated during the second week of January amid continued signs of a slowing economy and forecasts for mild weather in the Northeast, crude oil prices are still hovering about 70 percent higher than year-ago levels.