How oil impacts the economy?
Oil prices jumped to the highest level in more than three months on 3 January 2020 after the United States killed a top Iranian military commander in Iraq. The action has sent World all over in deep thought. There are fears that if this conflict is escalated the global supply of oil would be further disrupted leading to a further rise in oil prices.
Qassem Soleimani, the leader of the foreign wing of Iran’s Islamic Revolutionary Guard Corps, was killed in an airstrike on Baghdad’s international airport Friday. Soleimani was previously described as being second to only the Supreme Leader Ayatollah Ali Khamenei in Iran.
It has been seen that every time there is a conflict in the Middle East it has resulted in higher oil prices. In 1990, when the first Gulf War began, gas prices rose 11% over the previous year. And even earlier, gas prices increased by almost a third between 1979 and 1980 as a result of the Iranian Revolution.
However, this time the rise is not that magnified because investors expect the escalation will be contained. Also escalating tensions between the U.S. and Iran won’t be felt as acutely as previous conflicts in the Middle East. As now the global landscape of oil production is very different in one major way: The U.S. is now one of the world’s largest oil producers. The US has added 7.5 million barrels a day of oil production versus a decade ago which is a great shift in terms of the global demand and supply balance. The shale boom in the US has provided a buffer for consumers from increasing gas prices.
OPEC also has a big influence on oil prices. The consortium of oil-producing countries sets production levels to meet global demand and influence the price of oil and gas by increasing or decreasing production
Oil is the lifeline of developed nations. Oil has been the Modern World’s most important source of energy. Any increase in oil prices is generally thought to increase inflation and dampen economic growth. An increase in oil prices has a wave effect on the supply of other goods.
All over the world, there is talk of a revolution taking place in renewable energy to cut or even end oil dependence. Renewable technology is changing very fast. Electrical vehicles, although yet to become the norm, are increasing significantly. The industry is eagerly waiting for the time when this renewable revolution will reach its peak for a transition from fossil fuels to clean energy. And some planners forecast it to happen as early as 2025
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