I HAD lunch last week with a very clever economist who pointed out that economics really isn’t that hard. You need understand only two things, he said — supply and demand. Once you do, it isn’t difficult.

How odd then, that when it comes to oil so many strategists and politicians seem to find grasping the supply-demand equation so tough. Why, for example, do they insist on comparing today’s rising price with the oil shocks of the 1970s? Back then, the price changes were supply-related. Demand for oil didn’t change that much over the period, and it certainly didn’t outrun the supply that was potentially available.

However, thanks to wars and stroppy suppliers, there were huge supply disruptions. These pushed the price of oil up suddenly and sharply, and that caused no end of trouble.

This time the rising oil price isn’t so much about supply. Even the Katrina effect has proved short-lived. And in most Opec countries production is running close to full capacity.

Demand is a different matter. It is relentlessly increasing. In the West, oil demand is still rising — up 15% in the US between 1994 and 2004 — but in the developing world it is soaring. China is the best-known example. It has doubled its oil usage over the last decade and now consumes 30% of the world’s oil.

But this isn’t just about China. Oil consumption is also rising fast in India, Vietnam, Thailand, Russia and even in the Middle East itself.

So in this light let’s look at Gordon Brown’s bemusing comments on oil prices last Tuesday. High oil prices are a global problem, the chancellor said, and as such they require “global solutions”.

I can’t imagine what he means. We already know the world’s suppliers are producing as much as they can, so he can’t think his call for action will suddenly result in more oil being produced. And we already know the rise of global demand is unstoppable, so what can he expect to be done about that? Brown is right to think oil is a global problem, but it is also a global market, something that makes it utterly uncontrollable. The price will be determined by supply and demand, and that is that. And supply (not rising) and demand (rising) tell us the oil price will stay high and so will the petrol price.

If you are holding oil-related shares in your portfolio, you should hang on to them. That said, it might not be the right time to top up your holdings. While Brown is unlikely to cut fuel tax, there is every chance he will go for a windfall tax on the profits of the big oil companies.

That would be a big mistake, however. The reason there has been so little spending on exploration and refining capacity around the world in the past two decades is because oil companies have been making such rubbish profits they have had little incentive to invest in new projects. Now that they have those profits, surely it would be better if they got on with finding and refining more oil rather than handing the fruits of their good fortune to Brown. I certainly think so but I would hang back from the oil sector until it’s clearer what the politicians think.

PS My bullish case for the stock market in Japan (Merryn on Money, September 4) had little to do with the country’s election, but Koizumi’s landslide win last week and his mandate for reform certainly can’t hurt — nor can the healthy economic statistics pouring out of the country. I’m convinced a new bull market is under way in Japan.

Merryn Somerset Webb is a former stockbroker and now editor of Money Week. Her views are personal and investors should always seek professional advice.