Rising Oil Prices

Effects of Rising Oil Prices


Over the past few years, there has been a price surge witnessed at global levels in the basic necessities of life following the price hike. The world has been an over dependence on fossil fuel leading to ever increasing costs and soaring prices all over the world. This price soar has caused fear, panic and restlessness amongst many nations, especially the developing ones. Now is the right time to explore alternative sources of energy to fulfill the global rising demand.

OPEC has been using its power in negative channels impacting the oil production to increase prices from as low as $25 to $100 per barrel. The effect of price hike has direct impact upon an ordinary person's life. Apart from the obvious agricultural costs (due to rising prices of diesel), it has a direct impact on travelling, transportation, manufacturing, and the general price level of the economy. According to the latest IMF reports, the global rise in commodity price picked up swiftness in the year 2007 along with the financial market crisis & dampening growth of most economies of the world.

Since the beginning of 2007, global food prices have surged by as much as 45% due to oil price hike by OPEC. Crude oil price hike had a direct impact upon major staple commodities of the world including nickel, tin, corn, soybeans, wheat and many fruits. Strong demand of food from emerging nations with rise in personal disposable income has also contributed to price hike in global commodities. This strong demand directly impacted upon the rise in consumption levels of an ordinary man looking for better and expensive food items.

Biodiesel (an alternative to crude oil) is regarded as an eco friendly diesel but not without the expense of soybeans, and corns. These two commodities are used extensively throughout the world as alternative and cleaner sources of diesel but their usage also led to shortage in supply that resulted in price hike of these commodities.

Economic Effects of High Oil Prices

In many developing countries like India, Pakistan, Bangladesh, and Sri Lanka, economic progress got severely dampened due to rising oil prices directly translating to hyperinflation. Oil price rise in some highly developed countries remain with limited effect without effecting staple food commodities and basic necessities of life. This is due to strong government economic policies backed up with higher foreign reserves in countries like US, UK and many European nations. However the situation at large is totally the opposite in developing nations where government's failed & corrupt policies directly led to sky rise the general price level of economy. This price hike ignited many communities and economies in shapes of protests whereby peoples' lives have become miserable due to rising costs of basic necessities of life.
As per IMF reports, it was clearly evident that at least 50% of rise in consumption of stable crops in the US was accounted for the production of biodiesel. This has led to imported inflation in import driven economies. Pakistan, for instance is an import driven economy whereby rising Dollar, Euro, and Pound has put deep pressure on the Balance of Payments worsening the situation never witnessed before.

In the same report it was also stated that almost half of the countries in the African subcontinent have been successfully able to off-set inflationary impact by exporting fuel & food items at a higher cost. General Price Level is at an alarming rate in many of the developing countries due to their poor and unstable economic policies. Food expenditure in these countries crossed non-food expenditures by a large sum triggering fear and chaos amongst the masses. In many emerging as well as developing nations of the world, food price accounted for as much as 50% to 70% in General Price Index and Consumer Price Index within the past few years. Even though the price hike is stable as compared to few years ago, the rising food prices and hyperinflation in many countries is likely to carry on. Niger, Indonesia, Cameroon, Burkina Faso, India, Pakistan, Bangladesh and many other developing countries are witnessing worst ever political and economic conditions due to rising fuel and commodity prices. The situation improved for exporters of oil and staple world commodities while worsened drastically for the importers. There had been hardly any impact of fuel price hike on oil rich Gulf and Arabian nations like Saudi Arabia, Bahrain, Kuwait, Iraq, Iran and UAE etc.

Regardless of reduction in oil prices, it is anticipated that rarely these prices would come down from a certain ceiling due to rising fossil fuel exploration and processing costs. OPEC could place their oil quota which could lead to further price hike in response to rising oil production costs.

The effect of fuel price hikes is not just limited to oil and food commodities but also to rising material costs, construction costs, energy costs, and labor costs in almost all of the emerging and developing nations of the world.

Analysts and experts have shared their common beliefs that the global surge in food commodities has been due to a combination of many factors including oil price hike, droughts, and food scarcity in major food producing nations of the world.



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