Oil Crisis Essay Example | Topics and Well Written Essays - 750 words

Oil Crisis - Essay subjectOil is the major source of energy mankindwide and it is expected to remain so over the succeeding(a) few decades. Ever since, then crude oil has become the main raw material in all in all(prenominal) miserliness no matter it is a developed matchless or it is in the develop process. The changes in the prices of the crude oil are making positive and negative implications on every economy (Itzkoff, 2008).When these changes of prices are severe ones, one might easily conclude that an economy is going to face problems such as unfavorable hang on shocks. When these kinds of problems a ride in the mankind oil grocery, it is usually described as a world oil crisis. The world has witnessed 2 major oil crises and it is facing another one at the moment (Campbell, 2005). In order to discuss the recent oil crisis and its stinting implications I am going to refer to the appropriated economic theory. As mentioned previously the major problem that an economy is facing during every oil crisis is the adverse supply shock. Adverse supply shocks are unexpected events that reduce aggregate supply and therefore the output decreases and prices increase. In the language of economy it can also be said stagflation (Venn, 2002).Firstly, the underlying economic tool of demand and supply would be examined in reference to the oil prices. The overall world demand of oil has risen over the period mainly due to the increase in the telephone number of automobiles, which as a matter of fact is a expiration of higher living standards. Considering local factors, leasing and the gentle loan repayment options have made it easy for the every individual living in this world to afford a certain motor vehicle. This in turn has lead to the consumption of oil to the highest. So accordingly, when demand is high and supply is low the prices obviously will tend to rise. Secondly, if the oil pricing apparatus is considered it can be known that oil is a leading resour ce used by all the industries in this world in one way or the other. Some industries use it in the transporting domain while some use it to produce goods (Prince, 2008). Oil prices are set around the world by OPEC (The Organization of Oil Exporting Countries). What OPEC basically does is how cartels work around the globe they limit output to promise high oil prices and profit margins. Again when the output is limited, the demand supply function puts itself to work and the result is a surge in the oil prices. Thirdly and most importantly, oil is used as a lubricant and raw material in this era of industrialization and again the rise is population speaks for itself wherefore the world demand for oil has risen (Frieden, 2007). Increasing oil prices have far reaching effect on an economy. Just recently, when the oil prices rose to as high as $140/barrel many important countries were seemed to be undergoing a tough time with their budget management (Klare, 2008).On a wider perspectiv e, the make are far more on ground level then at the macro economic level. When oil prices rise, the prices of those commodities which are dependent on oil also rise. Now when the prices of the latter product rise then the products which use this latter product as a raw material, even their prices rise. The point conveyed through with(predicate) this paragraph can also be known as the multiplier effect in economics. multiplier factor effect leads to inflation on a grand scale and its results are mainly felt by the poor who are thus brought into the limelight (Eccleston, 2008). Linking to the upper paragraph, concerns about inflation depress the stock market and even when that does not happen, speculation itself acts as a rodent and thus this diverts away investment from a country. Studies have proved that an increase in the rate of inflation leads to an increase in the poverty level, abhorrence and suicide rates. This is one of the reasons