Oil Saga - The OPEC Oligopoly

- by V. Venkata Raghvendra *

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But in recent times, the crude oil price is reducing because of stagflation worldwide, so the availability of liquid cash is less, and the purchase capability of industries is reduced due to the fluctuating economic conditions around the world.

Impact of Oil Prices on Countries' Economy

Oil price has its own impact on global economy and individual countries' economy.

Changes in oil prices have been associated with major developments in the world economy, and are often seen as a trigger for inflation and recession. The increase in oil prices in 1974 and then again in 1979 were important factors in producing a slowdown in the world economy at a time when inflation was rising. Recent increases in oil prices have caused concern.

The Effects of a $ 10 Permanent Oil Price Increase on Long Rates (Percent Points Different from Baseline)

Source: Outlook Profit, Sep. 2008, Supplementary on OIL & GAS Reckoner

The above graph shows how the higher oil prices affect output. In the long run, output falls in the US, Europe and the Euro Area. The short run output effects are largest in the US in part because of its higher oil intensity, and also because the inflation effect is larger, and hence, the monetary response is more immediate. As a result, real long rates rise rather more than in the Euro Area.

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* Contributed by -
V. Venkata Raghvendra is an Engineering graduate with Electrical & Electronics as background. Currently working as sales promoter for MOTOROLA and pursuing Post Graduate Diploma in Management from Institute of Public Enterprise (IPE), Hyderabad.
Article posted on December 1, 2008.

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