The oil price has now climbed above the dangerous $100 a barrel level, as the week-long uprising against Egyptian President Hosni Mubarak showed signs of spreading through the region.

Overnight Jordan’s King Abdullah II sacked his unpopular government, while organisers in Syria, Bahrain and Algeria have called for protests against their own authoritarian rulers.

But with the Arab world on the brink of major political change, there are worries that the Western world may be about to see a replay of 1970s-style stagflation, coupling low economic growth with rising inflation.

Some even predict that the spike in the oil price could be enough to snuff out the economic recovery in the United States, and to send it back into a double-dip recession — after all, soaring oil prices have played a big part in almost every recession in the past 50 years.

And although the sub-prime crisis was responsible for triggering the most recent US recession, rising oil prices ensured that the financial crisis became a fully fledged global recession.

Oil prices climbed as high as $147 a barrel in mid-2008, and this was an enormous drag on the real incomes of big oil-importing countries. These include the US (which imports about two-thirds of its oil), most of Europe and Japan, as well as China.

Once the recession hit, oil demand dropped sharply, and the oil price plunged to $33 a barrel.

Since then, prices have been steadily moving higher. Even before the recent political turmoil in the Middle East, oil was trading above $90 a barrel and many analysts were tipping that this year, the price would climb as high as, or even higher than its 2008 peak.

One of the reasons the oil price is now climbing is that demand has recovered as a result of the strong global economic rebound. But the rise also reflects the extremely loose monetary policy in the United States and other major economies, where interest rates are close to zero, and central banks are engaged in quantitative easing. This has resulted in a flood of liquidity flowing into financial assets, and into commodities.

Not only is the oil price surging, but prices for other commodities such as copper, sugar, cotton, gold and palladium are also exceeding their peaks in the 2006-08 bull market.

Of course, rising commodity prices — and in particular, rising oil prices — hold a huge challenge for the global economy.

Rising commodity prices are fuelling inflation and raising political tensions in emerging countries, where food and oil account for more than half of household spending.

In the United States, high levels of unemployment, as well as lots of unused capacity, make it unlikely that the recent price rises for oil and other commodities will translate into sustained inflationary pressures.

But rising oil prices will undoubtedly dent the spending power of consumers. Faced with the prospect of higher petrol and oil prices, consumers will have little choice but to retrench their spending in other areas.

What’s more, there’s a risk that rising prices for oil and other commodities will eat into profit margins.

This was evident in the latest ISM report on manufacturing activity in the US, which showed that factory operators were facing rising price pressures. It’s likely that rising prices for oil and other commodity inputs were the reason for prices rising at their fastest pace since July 2008.

At this stage, no one knows whether political turmoil in the Middle East will spread to major oil-producing countries such as Saudi Arabia, and result in a serious surge in the oil price.

But the longer the oil price remains above the dangerous $100 barrel level, the greater the risk that we’ll see a renewed bout of stagflation.

*This first appeared on Business Spectator.