Petrol Prices

Political Unrest Effect on Petrol Prices


With the current political, social and economic unrest taking place in the Arab and African oil producing nations of the world, it seems as if 2011 might turn out to be the 1973. Just about a month back, oil stood at $95 per barrel, when Hosni Mubarak was Egypt's dictator. Now he is overthrown by powerful movement of people shaking the dictatorship of leaders across the oil producing nations, in the Middle East and Africa, oil now stands at $115 per barrel. Libya is home to world's 13th largest proven oil reserve and fulfills roughly 35% of the world oil consumption. The oil prices have an alarming ability to rage the global economy, where Mid-East had often been the main source of supply shocks most of the times. From the OPEC oil embargo in 1973 to the revolution of Iran in 1979 and the invasion of Kuwait by Saddam Hussain in 1990 are all just agonizing past events of how the wanting to control oil reserves could lead to upheavals throughout the regions.

The above protests and civil unrest among the masses of these countries show how revolutions disrupt oil supply leading to price hikes. With increasing civil unrest in the country and foreign workers fleeing from oil refineries, Libya's production of oil dropped as much as 66%; and that's not all. The world is silently watching the devastating effects of increased protests and sparks in other Middle Eastern oil producing nations to witness further oil price hikes. Thanks to Saudi Arabia for playing their part positively with the increased production levels pushing down price from $120 to $116 per barrel. Two side by side global economic impacts could be evidenced here. Oil prices would shoot up leading to inflation that would further get tough on recovering monetary situations of global economies. We need to see how well the central banks of their respective economies play their part of withstanding these monetary effects.

Oil and Petrol Prices are Rising

These sparks are not just limited to Egypt and Libya but growing at a wild intensity range to other oil producing countries like Yemen, Bahrain, Iran & Algeria. This fuss has added a 20% price rise in global fuel prices. It is true that two reasons determine oil prices; one is the law of demand & supply and the other is outrageous political/social/economic fear.

The condition of Libya is very gloomy as rebellion & Muammar Qaddafi's armed forces fight for the control of their only natural resource; the black gold. The primary seaports of Libya handling 80% of Libya's exports namely Brega, As Sidra, Tobruk, Ras Lanuf, & Zeutina were held by the rebellions, although two of them taken successful control by Qaddafi's forces. As of today, the anti-government protestors have taken seizure of the country's biggest oil well named Sarir that delivers roughly 400,000 barrels of oil during normal circumstances; however this control does not seem to last for long.

Fear has been expressed by Saudi citizens and government authorities that protests ignited by Shia population of Bahrain could fall on to Saudi Arabia. Eastern provinces of Saudi Arabia are home to the country's rich resources of oil with ample oil stocks, paralleled with dominant Shiah population that could have their grievance shared with the Shiah's of Bahrain at the same time. Rarely did it happen that his highness of Kingdom of Saudi Arabia gave any commercial speech to its citizens. However this anomaly took place a few days back announcing benefits of $36 billion to its citizens in various forms of government grants, educational benefits, health insurance, and increased public spending. Perhaps this decision could be taken in order to keep Saudi Arabia free from becoming second Egypt or Libya as the government does not want rebels to rise from within going against it. A big point to worry is that the entire situation in the Middle East could create another oil shock similar to the 1973 Oil Crisis. During the 1970's OPEC had a dominant world market share of fuel oil. After a few years many companies and countries emerged from Africa and Latin America leading to decreased market share of OPEC dropping from 51% during the 1970s to 40% as of today. Yet, the globalized levels of oil production did not have significant impact on oil prices and OPEC still enjoys substantial oligopolistic competition to manipulate quota and prices. Many non-OPEC oil supplying countries are running on their full capacity whereas OPEC isn't yielding complete output in order to gain control over world oil price.

Supply and Demand with Oil Prices

The world can withstand disruptions in oil supplies on short term basis. However should this oil disruption coupled with price hike remains for long term basis, it would become extremely difficult for many economies of the world to recover from monetary meltdown. Democratic oil producing economies are not as stable as they used to be decades ago. Libya, Egypt, Sudan, Iran and Iraq are currently in turmoil of political and economic pressures making them less stable as compared to the monarchy of Saudi Arabia. The Saudi foreign minister after announcing $36 billion assistance in forms of various grants to its citizens has quite helped in avoiding protests and maintaining high levels of peace throughout the country. However the situation in the small island kingdom near the east coasts of Saudi Arabia is very gloom. Thousands of Shia's present in Bahrain is demanding to deprive Sunni population of Bahrain nationality.

It seems as if the oil producing nations are crippled in protests with disruptions in oil production leading to global price hike. Urgent attention is needed to cover these matters and to solve long term price hike ill effects on world health.



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