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Are high oil prices a big concern?
Tue, 8 Mar Pre-Open

The Arab oil embargo of 1973 caused oil prices to hit the roof and brought pain to many countries. It's almost 40 years since and the world is now witnessing a wave of unrest spreading in the Middle East. So the question being asked is how big is this crisis in terms of wreaking havoc in the global oil market?

So far, the response has not been overly catastrophic. Yes, production in Libya was curtailed and oil prices breached the US$ 100 a barrel mark. But as soon as Saudi Arabia announced more production, oil prices once again retreated. Not just that, the scenario has also altered compared to what it was way back in 1973. Governments now have more stockpiles and Saudi Arabia is sitting on huge reserves of spare capacity.

This is not to say that problems do not persist. From a longer term perspective, as supply fails to catch up with demand to depleting oil production, oil prices are expected to remain firm. Higher oil prices also fuel inflation which ironically was one of the root causes of the revolutions in the Middle East and has been a source of headache for governments in emerging countries such as China and India.

Right now shortage of food has emerged as the bigger problem as unpredictable weather patterns and change in lifestyles and diet have hampered food production and brought about a structural shift. And so higher oil prices have been relegated to the background as problems of food shortage and rise in food prices have taken centrestage. That said, the real problem in the global oil market will be manifest when unrest begins to unravel in Saudi Arabia. As the Economist has pointed out, the kingdom has many of the characteristics that have fuelled unrest elsewhere, a repressive regime being one of them. Saudi alone accounts for a significant share of the global oil market. So a disruption in production there is bound to have serious repercussions on global oil prices. Indeed, with governments and central bankers already at their wits' end as inflation and food problems continue to mount, this is one problem they will be glad to see not playing out.

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2 Responses to "Are high oil prices a big concern?"

pravin k modi

Mar 11, 2011

absolutely,to all over world economy.



Mar 9, 2011

yes, higher oil prices r big concern to Global economy at large.
but in my view it's more to the devloped country than ,
to the emerging markets. The FII OUT FLOW that we haeve seen recently will have no choice but to return back to emerging markets as the high oil price impact at the devloped countries will be more in comarision to the Inida and China.

Equitymaster requests your view! Post a comment on "Are high oil prices a big concern?". Click here!

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Feb 21, 2018 09:51 AM