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Briefing

Economic Impact of Oil

Critical Issues

Background:

The increase in the price of oil and other commodities contributes to an increase in inflation and may exacerbate economic weakness as it reduce demand for both oil products and other goods. Those countries that must import all or the vast majority of their energy sources also face a deterioration of their trade balances as they have to spend more on the imported fuel. Those that subsidize fuel also face fiscal deterioration. These trends were clearly visible in 2008 when an average oil price of US$100 per barrel contributed to the entry into global recession. European countries and Japan are less exposed to oil price spikes than the U.S. and China as their energy use per unit of GDP has been falling and they have higher taxes on petroleum.

 

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Associated Readings

Analysis UniCredit Global Research June 2009 When will the oil price reach the USD 100 mark again? Blogs Econbrowser James Hamilton May 31, 2009 Supply, demand, and the price of oil Analysis New Edge Group Antoine Halff Jan 07, 2009 The Outlook for Physical and Paper Oil Markets in 2009 Analysis Merrill Lynch November 2008 The end to global imbalances