Oil Controlling the World - Essay Example

OIL CONTROLLING THE WORLD: THE RIPPLE EFFECT The race for world resources is getting competitive day by day, although there are a number of new emerging players, they all seem to battling for one common interest, OIL! At present oil prices have long broken the $100 barrier and it only seems to heading in one direction, UPWARDS. The United States has just published weaker-than-expected weekly oil inventory data; Russia has failed to push forward with developing its oil fields in the Barents Sea; and as for the reserves of the OPEC countries -- no one knows what they are exactly. Saudi Arabia, the world's biggest oil producer, was expected to raise production levels from 12 million barrels to 15 million barrels a day, but that hasn't happened yet. Whether they can't, or they simply don't want to, remains a matter of speculation. (NICOLA, 2008) The battle for energy is shaping many conflicts of the present century, and those of future, but soaring oil prices not only have an impact on industrial production, but pose a greater threat to the end consumer and economy at large by have indirect effects on food prices, global industry, travel expenses, famine as more and more land is used to grow bio fuels and world food production is decreasing, the list can be endless. FACTORS BEHING HIGH OIL PRICES 'Unlike the previous oil shocks, which were more and less blamed on the imbalance between demand and supply, the current rise in oil prices is more complicated than just instability of demand and supply. So if one probes into the factors that have played a part in rising oil prices, one comes to a conclusion that there are a number of reasons ranging from a weak dollar to tensions between the U.S. and Iran. At the heart of the problem, though, is the fact that global demand is currently outstripping global supply. Countries such as China and India are thirsty for oil to fuel their economic growth, yet the world's oil-producing regions are producing less oil. In Nigeria, tensions in the Niger Delta region have curtailed production by nearly a million barrels a day. Fears of war between the U.S. and Iran, one of the world's biggest oil producers, have driven up prices further. And some of the world's major oil fields, the Cantarell Field in Mexico, for instance, are yielding disappointing amounts of crude oil this year, for geological, not geopolitical reasons.' (Weiner, 2007) HIGH OIL PRICES: THE WINNERS AND LOOSERS OF THE GAME In the political game revolving around the rise and fall of oil prices, there are some profit makers, while some are at the losing end. While it is obvious that the oil companies must be making huge profits, owing the fueling demand and high prices, it is the companies that specialize in withdrawing crude oil, who are the major profit holders. 'Exxon-Mobil, the world's largest publicly traded oil company, recently reported a profit of $9.4 billion. Impressive, more money than any publicly traded company has made in U.S. history.' (Weiner, 2007) 'The traditional big-oil producers, such as Saudi Arabia, Kuwait and other Persian Gulf nations, but also relative newcomers to the oil game, such as Kazakhstan and other nations that border the oil-rich Caspian Sea. Iran, Russia and Venezuela are also big winners. Higher oil prices might embolden leaders of those nations to play a more assertive role on the world stage and, in the case of Iran, deflect international pressure to dismantle its nuclear program.' (Weiner, 2007) 'At the losing end is any nation that is a net importer of oil, such as the U.S. and most European nations. The European pain, however, is blunted by the strong Euro and Europe's fuel-efficient transport systems. China is another loser. It's appetite for oil is seemingly insatiable, and it's already paying more for that addiction. India is potentially even more vulnerable: It uses less oil than China but imports 70 percent of it, compared with 50 percent for China.' (Weiner, 2007) ECONOMIC COSTS OF HIGH PRICES Recently, oil prices have leaped over $135 per barrel over night, which as mentioned above does benefit some companies, but there are some serious economic circumstances others have to bear due to this leap. For example, recently the Ford Motor company has decided to cut back its production due to high maintenance cost hitting its bottom line. In a statement, a top Ford executive said rising gasoline prices "are having a tremendous impact on our sales, our manufacturing operations and our profitability (Bowley, 2008). Meanwhile, Europe's biggest airline, Air France-KLM, warned of a profound reshaping of the world airline industry caused by what it called the "explosion" in the price of oil. And American Airlines said on Wednesday that it would slash flights and begin charging passengers to check bags, part of a company effort to cut costs in the face of skyrocketing fuel prices. (Bowley, 2008) Another reasons behind rising prices are unspeculated reports, suggesting that future supplies would not be able to cope up with the rising demand for oil, or reports on weakening United States oil inventories, largest importer of oil, just ahead of the summer season, which create anxiesties among investors, which furthers leads to an increase in prices. Other economic cost, controlled by oil prices, is the rising food shortage and ever increasing food prices, although climate change is one of the major reasons, oil prices do have their share in the current food crises. Since oil prices have risen drastically, more and more attention is diverted towards alternetive sources of oil, such as bio fuels. For this reason more and more land is dedicated for growing corn and sugar cane, used for making ethanol for biofuel, particularly in Brazil, which leads to shortage in food output. Another consequence of rising fuel costs is that farmers, particularly in the developing countries are unavle to cope up with high transportation costs etc, which again explains the food crises. One of the Macro economic impact of high oil prices is that since oil is also a vital input for the production of a wide range of goods and services, because it is used for transportation in businesses of all types. Higher oil prices thus increase the cost of inputs; and if the cost increases cannot be passed on to consumers, economic inputs such as labor and capital stock may be reallocated. Higher oil prices can cause worker layoffs and the idling of plants, reducing economic output in the short term. (Khilji, 2006) ROLE OF UK AND US GOVERNMENTS The UK government is under pressure to reduce the rising petrol prices and strengthen up efforts to reduce the profits made by oil companies. Some of the measures taken by the government are as follows (Vina, 2008) Prime Minister Gordon Brown relaxed taxes on some smaller North Sea oil fields in an effort to lift output in the U.K. and soothe a political backlash brought on by soaring energy prices. The UK government exempted 30 unprofitable oil fields from Petroleum Revenue Tax and granted licenses to two new sites operated by Petrofac Ltd. Britain's effort to contain the impact of oil prices follows a jump in inflation led by higher food and fuel prices around the globe. The UK government has already introduced an emergency tax cut worth 2.7 billion pounds ($5.3 billion) to compensate poor workers for the abolition of the starting rate of income tax. Brown said he wants the issue to feature on the agenda for the Group of Eight summit in Japan. He's also pressing the Organization of Petroleum Exporting Countries to increase its production Thirty-five lawmakers in UK from the ruling Labor Party have signed a motion protesting plans to increase the annual tax paid by owners of the most polluting cars. The tax change, which comes into force next year, will almost double the duty payable to 415 pounds a year on big cars bought between 2001 and 2006. High oil prices are hitting the US consumers too, who are now changing their driving habits. A report by the Commerce Department showed that the country's trade gap increased to $58.2 billion in January 2007 that was up from a trade shortfall of $57.9 billion in December and was the highest since November. The U.S. administration says free-trade policies that also make it easier for U.S. companies to do business in other countries are the best way to deal with the country's trade deficits. Democrats, however, blame the president's trade policies for the trade gap and the loss of millions of U.S. factory jobs as U.S. companies moved production to low-wage countries like China. (High oil prices help widen U.S. trade deficit , 2008) CONCLUSION 'The world is standing at energy crossroads and the decisions that are made over the next few years will either lock us into a self-destructive path for decades to come or send us in the direction of long-term solutions. Now more than ever, we need vision and leadership from our leaders. Energy security and energy poverty are serious issues that deserve and demand the world's attention, but we cannot overcome energy poverty or achieve lasting energy security if we continue on the road that we are on today.' (High Oil Prices: Undermining Debt Cancellation and Fueling a New Crisis, 2006) 'The problems of oil addiction and debt cannot be solved by relying on the same kinds of approaches that helped to create them. The solution to the ongoing oil crisis is not more oil, and increasing supplies will not help highly indebted oil importers overcome their dangerous dependence on foreign oil. Similarly, energy security will not be achieved by using public institutions to subsidize the expansion of the international oil industry or by militarizing oil supplies. Public resources should be focused on supporting truly sustainable energy solutions that will help to minimize our reliance on oil, maximize the potential of renewable, and put an end to the unacceptably high price that the world is currently paying for its addiction to oil.' (High Oil Prices: Undermining Debt Cancellation and Fueling a New Crisis, 2006) Words (1694) References 1. Bowley, g. ( 2008, May 23). Economic Toll Mounts From High Oil Prices. Retrieved June 03, 2008, from The New York Times: http://www.nytimes.com/2008/05/23/business/worldbusiness/23oilweb.html# 2. High oil prices help widen U.S. trade deficit . (2008, March 11). Retrieved June 03, 2008, from International Herald Tribune: http://www.iht.com/articles/2008/03/11/business/11trade.php 3. High Oil Prices: Undermining Debt Cancellation and Fueling a New Crisis (2006, July). Retrieved June 03, 2008, from Jubilee USA Network: http://www.jubileeusa.org/fileadmin/user_upload/Resources/Policy_Archive/Fueling_a_New_Crisis_2006.pdf 4. Khilji, N. (2006). Economic Effects of High Oil Prices . Retrieved June 03, 2008, from Energy Information Administration: http://www.eia.doe.gov/oiaf/aeo/otheranalysis/aeo_2006analysispapers/efhop.html 5. NICOLA, S. (2008, May 23). High oil prices trouble Europe's economies. Retrieved June 03, 2008, from United Press International: http://www.upi.com/International_Security/Energy/Analysis/2008/05/23/analysis_europe_worried_by_oil_prices/3348/ 6. Vina, G. (2008, May 28). Brown Relaxes North Sea Tax to Boost U.K. Oil Output . Retrieved June 03, 2008, from http://www.bloomberg.com/apps/newspid=20601102&sid=aNHHoowEyYJM&refer=uk 7. Weiner, E. (2007). Oil Approaches $100 a Barrel. What Now Retrieved June 03, 2008, from http://www.npr.org/templates/story/story.phpstoryId=16211938 Read More