China's new demand coupled with India's growing demand are the main reason for the rise in oil. The real question is who's economy can withstand these price increases? America, Europe, Japan, China, India, et.al. My bet is that America with the most diversified economy is in better shape to weather the sustained high oil costs compared with the rest of the world. China and India are especially sensitive to oil costs due to their export manufacturing economy. Europe really doesn't matter since neither their economy or demand for oil has changed much. My call is this is really a Mexican stand off between the major economies. My bet is that China and India's economies will blink before us, causing a fall in demand and price.
If their input prices rise, won't they just raise prices? I've forgotten who China exports to, but it sounds to me as though they are the folks who will end up paying the bill for China's higher petroleum prices.
Actually, no. Europe and Japan are much less dependent on petroleum than we are. Their higher gas taxes have lead to higher fuel effeciency standards as well as a more diversified source of energy production and transportation.
We've done next to nothing about energy for the last 20 years, even as the writing has been on the wall. The chickens are coming home to roost.