The Economic Impact of Rising Oil Prices

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

The immediate economic impact of the Iraq war has been to cause uncertainty in the direction that the U.S. economy will take. In a recent USA Today article, Polya Lesova sites the record high cost of crude oil at $91.86 per barrel as a precursor to an impending crisis. “An unexpected drop in U.S. stockpiles has added to ongoing concern that supply from the Middle East may be disrupted." Economists such as Stiglitz believe that there are two reasons the Iraq war has significantly impacted global oil prices; 1) it has added significantly to

This report will consist of the causes and consequences of the changing price of WTI crude oil and recent trends in the global price of oil. It will also include the effects of the ever-changing price of oil on individuals, business firms, governments and the economy.

Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks)

Food prices and the prices of other materials will also increase as a result of peak oil, which is another economic impact. This is because all countries rely on imports of food or other materials. For example, more than 80% of the imports to America are goods and industrial equipment ($2.268 trillion) and the smallest import category is food ($115 billion). These rates will be affected due to peak oil because most of these imports are either shipped, or are received by transportation, which runs on oil as a fuel. When peak oil is reached, ships and other methods of transportation would not have enough fuel to run on which therefore results in countries not receiving materials they need. This issue greatly affects low-income countries such

The oil-rich Bolivarian Republic of Venezuela, located on the northern coast of South America, was for many decades considered among the wealthiest nations in the entire continent. While having the largest proven oil reserves in the world has often proved a tremendous boon for Venezuela, the very black gold that has been the cause of its success has also proven to repeatedly be its kryptonite. Over half of the nation’s Gross Domestic Product stems from petroleum exports – which equates to approximately 95% of total exports. It is really not too hard to imagine what drastic consequences shifts in global oil prices could have on the economy.

According to Domm (2013), the author of the first article, apart from the unrest in Egypt, several other factors such as a plunge in the inventories of domestic crude oil could drive up demand and in the end trigger an increase in the price of gas. In the opinion of the author, although the problems facing Egypt (and Libya) have affected supply

Dependence on oil is a threat to international economics. The Middle East holds much of earth’s supply—twenty percent of the world’s oil comes from the Persian Gulf. The U.S. itself imports more than two million barrels per day of Persian Gulf petroleum and crude oil (J. Miller). That’s almost twelve percent of America’s oil use. This region of the world is tumultuous, with wars and uprisings ongoing; relying so heavily on trade from this area places the international economy at risk. Nuclear weapons are available, and due to the tension between Israel and the surrounding Arab nations, their use is plausible. Both ISIS and Al Qaida operate there, religious fundamentalism and corruption are rampant, and the Syrian civil war hasn’t showed

The trends in the oil industry are clear and undisputed: exploration and production are becoming more costly, and are giving rise to greater environmental risks, while competition for access to new prospective regions is generating increasing geopolitical tensions. According to the International Energy Agency, the rate of world crude oil production reached its peak in 2006.[IEA 2010a) The IMF has joined a chorus of energy industry analysts in concluding that scarcity and high prices are here to stay.[IMF 2011a, 2011b]

powerful group because it controls 80% of the world’s oil and therefore is extremely influential in country’s economic system. The policies developed by OPEC directly affect the production of oil globally. It was formed at the Baghdad Conference in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Venezuela alone harbors 20% of the world’s oil. As OPEC memberships of countries were suspended other countries joined. Today, 13 member countries: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. These countries bare the unalienable right to manage their natural resources in the interest of their progress as a nation under the “Declaratory Statement of

Since the past few decades, owning a car has become a necessity in order to commute from one place to another. However, cars do not work automatically, they require fuel. Since the past decade, the petroleum industry has become one of the leading industries impacting the nation’s economy. Oil has become an essential commodity as it is utilized in transportation vehicles, serves as a raw material for manufacturing plastics, and is utilized in homes for cooking. America’s economy is greatly dependent on petroleum as it is the “black gold” of the nation. The considerable significance of oil has led to the drilling of it, which is not only limited to land, but also the oceans. Offshore drilling is a method in which petroleum is extracted from underneath the seabed. It is one of the significant technological advancements in the past few decades. However, the ones who are involved in the process of offshore oil production are humans, and humans tend to make mistakes. In 1969, due to a human error, an oil spill occurred and natural gas, oil, and mud shot up the well and oozed into the ocean (“Offshore Drilling”). The oil spilled led to an environmental disaster which killed thousands of marine animals and distorted the environment. In order to prevent the same error, the government passed a moratorium in 1981, banning more than 85 percent of the country’s oil drilling sites (“Offshore Drilling”). The moratorium restricted the United States to mass-produce its natural resource.

Crude oil is still a driving force of the world economy today. Changes in the price of oil have significant effects on economic growth, development and welfare in countries. Oil price volatility has had its ups and downs in the past year as well as the past decade. Oil prices fluctuate for a number of reasons. One reason why oil prices fluctuated is because of rising global economic activity. It can increase demand and push prices higher, while rising production can cause prices to decline. During the last financial crisis there was a grueling time for oil prices as they had fallen about 50% during that time. (Moors, 2011) Many studies have shown that economic effects of oil price can increase or decrease and they typically show that for oil importing developed economics (Moors, 2011). This paper that I have written thoroughly investigates the role of oil price volatility. My paper also focuses on the variability of positive and negative oil price shocks as seen in Germany, Japan and United sates.

The demand for oil has a number of important facts that we can look at starting from 1980 to 2008 where the world’s demand increased by 40%, from 60m barrels per day to over 85m barrels. This was due to the increase in oil consumption of growing economies which make up approximately 66% of total world demand. The other fact is that the demand for oil is relatively inelastic with respect to price, given that oil has few direct substitutes. Similarly, demand for oil is relatively inelastic with respect to income of growing economies. However, income elasticity of demand in developing economies like China and India is likely to be higher.

Curde Oil price affects on economy is different in different country. In general, low prices are considered good for importers of oil because it not only improves consumer spending but also improves the trade balance of a country. Therefore an increase in oil prices has a considerable negative impact on the GDP growth country which imports oil. Whereas drop in Oil Price is bad for oil exporters as it could put a pessimism in revenues of oil exporting countries where crude exports play an enormously significant role in economic growth. Moshiri &Banihashem (2012) concluded that many oil-exporting countries are heavily dependent on exports from oil revenues, so when oil prices are low, their economies suppress, and when oil prices are high,

A recent IMF working paper (No.11/194) “Oil shocks in a global perspective: Are they really that bad?” is a scholarly exposition downplaying the gloomy prognostications associated with surging oil prices. The importance of the paper is that it almost exclusively focuses on the economies of developing countries.