Alf Young on Tuesday: During crude oil�s brisk ascent to its July price peak of $147.27 a barrel, any war in the Caucasus or an earlier dissident strike against a key oil and gas pipeline route to the West would almost certainly have pushed that record even higher.

DURING crude oil's brisk ascent to its July price peak of $147.27 a barrel, any war in the Caucasus or an earlier dissident strike against a key oil and gas pipeline route to the West would almost certainly have pushed that record even higher. Arguably a great deal higher.

In the unresolved debate about whether widespread commodity speculation or some fundamental re-ordering of global supply and demand lay behind the relentless upwards march of the oil price, such disruptions can assume the significance of rocket fuel in propelling prices skywards.

Assorted instances of political or labour unrest in oil-producing territories from Africa to South America were, after all, regularly trotted out as significant factors behind various phases of that earlier price surge.

But last week's outbreak of conflict in Georgia and the explosion and fire, days earlier, in the Turkish section the Baku-Tbilisi-Ceyhan (BTC) supply pipeline linking Azerbaijani fields under the Caspian Sea with a Western-facing export terminal on the Mediterranean, coming nearly a month after prices peaked, have done little to stem oil's recent weakness.

Indeed, as Russia bombed key Georgian towns in retaliation for President Saakashvili's offensive on the troubled breakaway territory of South Ossetia on Friday, the global oil price actually fell sharply, by more than $5 a barrel.

And, with the bloody conflict continuing over the weekend and the fire in the BTC pipeline, claimed by Kurdish secessionists, only extinguished yesterday and likely to take another week or two to repair, the price of oil on world markets merely marked time yesterday. Rocket fuel has turned, for now, into something as tepid as tap water.

The global oil price is now down 21% from its July 11 peak, mirroring, to a large extent, the sharpness of its earlier rise. One reason is the recent surge of the American dollar against the euro, the yen and other currencies and a growing expectation that this move, reflecting improving economic sentiment across the Atlantic, but tougher times ahead for the eurozone and Japan, could mark the beginning of the end for the dollar's six-year downward slide in foreign exchange markets.

Other factors include the impact of a global slowdown on demand for energy and an easing of speculative interest in oil and other commodities as profitable hedge investments. More voices, including the former Fed chairman Alan Greenspan, are now arguing that a fresh price surge in oil is unlikely any time soon.

Indeed, some suggest oil could fall all the way back to around $75 to $80 a barrel in the foreseeable future. Greenspan argues that speculators have been unwinding their positions and taking their profits as the global economic outlook darkens.

But the prospect of much weaker growth ahead, this year and next, and, in consequence, slowing demand for energy, could prove to be the decisive pressure on the oil price going forward.

For now Opec has persisted with its higher production quotas, despite the recent price falls. So far this year producer country earnings are well up on 2007, a combination of surging prices and increased output, but it's probably only a matter of time before some voices in the cartel start calling for production cut-backs. We may begin to hear those calls when the Opec council next meets, in September.

The knock-on impact of recent price falls on what it costs to fill a car or truck's tank is already evident, with supermarkets vying to chop another 2p off the price of a litre of petrol or diesel yesterday.

It isn't happening quickly enough for many motorists or hauliers. But the cumulative cut, around 10p from the peak price so far, is much bigger than the kind of government duty changes that were being squabbled over, with such ferosity, in recent months.

And, if these price falls are sustained, they will begin to feed through into lower inflation too, taking some pressure off the Bank of England as it wrestles with its monthly interest rate dilemma.

That said, the conflict in Georgia has highlighted one other big piece in the oil jigsaw which, if displaced for any length of time, could throw all these price and supply hopes into renewed disarray. Georgia has no great hydrocarbon reserves of its own. But it is an important link between the oil-rich Caspian region and markets for oil and gas in the West.

Russia will continue to deny that control of pipelines - like the damaged BTC link or the planned Nabucco gas line, due to be operational in 2013 - is a factor in its hard-line response to the Saakashvili government's incursions in South Ossetia. But many Western European politicians beg to differ. Moscow has also played hardball with Ukraine, another key supply route to the West.

Oil is power in a world that finds it difficult to shake off its hydrocarbon addiction. So, even if the price falls over the next year and more, and takes some pressure off Western governments for now, the challenges longer term are as daunting as ever.