International Political Economy of Oil and Gas - Essay Example

The degree of dependence of the users on the oil and gas and their flexibility to adopt alternative sources of energy under the circumstances of rising oil prices determine the competitive advantage of the major oil exporting nation over the others and the degree of aggression of these economies over other countries due to the competitive advantage in the international economy (Bentley, 2002, p.199). The movement of gas prices in relation to the oil prices, the volume of used of gas and other forms of energy like electricity, solar energy, hydro-electricity used in the economies determine the impact of oil prices on the economies all over the world.

In general circumstances, the rise in the oil prices leads to higher amount of national income for the oil exporting countries of the world. According to the recent report of OECD, the prices of oil are expected to soar up to 190 dollars till 2020 in terms of real value of money in today’s economy. Due to the rise in the prices of oil, the net oil importing countries face situations of economic slowdown due to the rigidity in the structure of their economies (Sengupta, 2011, p.35). The minimum wages to be paid to the labours, the cost for importing the oil from the major oil exporters, the degree of economic investments are all affected by the rise of oil prices.

The oil importing economies have to transfer more national income to the international oil exporters for importing the same volume of oil. Thus the volume of oil imports tends to decrease in a situation of rising international oil prices (Mankiw, 2011, p.82). This leads to slowdown of investments in the economy of the importing countries. The subsequent implications for the net oil importing countries are inflation in the economy as the supply of goods and services are not able to meet the demand of the markets.

Due to circular flow of money, the