Impact of Oil Prices - Assignment Example

From 2002 through 2005, several storms hit on oil production including the conflict in Iraq and the interference of hurricanes (United States, 1991). Moreover, during the same period, there was increased demand for oil in numerous nations including China and India due to their increased industrialization (United States, Maloney, and Schumer, 2007). The subsequent instabilities in oil production and the increase, in oil price per barrel of the 2000s, had no destructive effect on the United States Economy. Therefore, it is apparent that the current effects or instabilities on the oil prices have little effect on the United States economy, as was the case in the 1970s and 1980s.

The main reason towards these changed effects is that there has been a reduction in energy (oil and gas) spent in producing each dollar in the United States output. Additionally, there has been a shift in production techniques, that is, the current technologies only require a small amount of energy for production compared to the 1970s and 1980s technologies (United States, 1991). Economic experts estimate the current United States economy to be less than 33 per cent dependent or sensitive to oil price fluctuation unlike over 55 per cent less sensitivity in the early 1980s and even more in the mid-1970s (United States, Maloney, and Schumer, 2007). Finally, the Federal Government has since developed vigilant and adept monetary policies for handling inflationary impacts.