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Political Economy of Oil - Essay Example

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Summary to essay on topic "Political Economy of Oil"
Oil is considered a source of energy that has turned out to be the essential part of our economy. Demand for oil is increasing as we are persistently using this valuable resource. While using these resources we do not acknowledge the fact that oil is a finite resource…
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Download file "Political Economy of Oil" to see previous pages... The crises that started with the oil crisis in 1970s extended to Gulf War in the 90s. There are different terrorist threats today that affect oil resources such as oil refineries in Saudi Arabia. The deteriorating law and order situation in Iraq also resulted in fear of disruption of oil supply. There are threats of war with Iran that bring greater fears of volatility in the oil-producing region.
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These & other such factors have kept oil prices very high and they affect current market scenario. The hope for stability in oil prices is dependent on both political & economic stability.
Transportation, heating, power generation, the plastics, pharmaceuticals and synthetic fibre industries are the main ways in which oil is consumed. Demand for oil is greater in the developed nations compared to the developing economies. United States of America solely generates a quarter of world oil demand. Asia comes next with Japan having the highest consumption of oil. In Europe no one country can be considered highest oil consuming country instead the demand is evenly generated by all European nations, The demand for oil diminished considerably in Soviet Union after its collapse.US demand for energy is greater and its dependence on oil producing countries is also increasing.
The oil supply is mainly provided by large companies operating in countries with large reserves of oil. Countries like UAE, Saudi Arabia, Venezuela, Norway and Kuwait are some of the oil rich countries and are main suppliers of oil to the world. Since supply side of equation plays a crucial role in stabilty of oil markets, the countries producing oil have been trying to stabilize the price of crude oil through production policy. However, the interest of world economy does not lie in bringing stability by production manipulation. Since oil is a resource that depletes with time so its value increases with time as well. A country cannot let go of its future worth or value by increasing its production at the current market price. It is not in the economic interests of such oil producing countries to pursue a production policy incompatible with their own economic interests.

Countries like Saudi Arabia have been contributing to the world economy in general and other Western and developed economies like Japan in particular by supplying more oil than it should. For instance Saudi Arabia, of the largest oil producers, increased its production of oil after the oil crises of 1979, resulting in a downward crude-oil price trend in world markets. This manipulation by any country or cartel cannot reap economic benefits in the long run. The market factors should be allowed to play their due role instead of manipulation. There is an increasing trend in demand for crude oil because consumption is greater than the supply. Market economy is the best way to allocate resources. The concept of oil peak suggests that once we reach the stage of peak the economy will be greatly affected. Similarly experts say that world oil reserves will also reach its peak in not so distant future resulting in price hikes and economic recession along with geopolitical repercussions.

Oil Situation in USA

If we consider the oil peak theory according to which there will be a sharp decline in supply because demand is constantly increasing whereas the speed of finding or exploring new oil sources is not matching that then we come to know that the oil ...Download file "Political Economy of Oil" to see next pagesRead More
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