Global Economic Prospects 2014

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Submitted by chimaobi okolo valentine on
A major oil supply cutoff will drive oil price high. While oil price has relative effect on prices of other commodities, it will have certain implications for oil driven economies. A rise in the price of oil will cause a relative increase in the price of other commodities, including price of food (both for oil producing and consuming states). Oil producing states will benefit from this increase in oil price as more money will run into their coffers. An oil producing country whose GDP is largely dependent on oil will have increased stock of money and in turn inflation (if consumption policy is not effective). Nigeria has been in this situation, where increase in oil price caused a boom and inflation increased alongside expenditure. When supply was restored and oil price reduced, prices of other commodities did not drop immediately and consumption pattern of the people was hard to reverse. The impact on the people was painful and more was driven back to poverty. Also, while the boom lasted, GDP and money stock increased, government and policy authorities were dissuaded from other sources of income and focused largely on oil, making the economy one sector driven. Oil consuming states like USA will also notice a relative increase in prices of other commodities, including food. However, this will not be due to inflation but as a result of scarcity of oil (increase of demand over supply) and while oil price drive the economy, market forces that push oil price will have relative effect on the prices of other commodities. This could give a painful experience to the middle and low income earners period when supply is cutoff. Once supply is restored, business becomes as usual. However, this will be true mainly for economies without alternative and those who do not have precautionary plan. Furthermore, oil is a commodity on the world market and increase in oil price will relatively cause an increase in prices of other commodities on international market that depend on it. Major car companies, air lines, heavy machine producers and others will be affected. I suggest that oil producing states try to foresee the impact of oil price movement and plan for a sustained growth in the economy. While oil price have relative effect on the price of other commodities, its effect on the price of food will be felt more by the low income earners. Therefore, prudent governments should plan to improve agriculture and increase supply of food to its populace. Increase in the supply of food will check the relative effect of oil price increase on food price. Furthermore, middle east countries should be encouraged to seek peace. Organizations like the UN, World bank, and neighboring countries should intervene and calm the unrest in the region. The unrest in the middle east could cutoff oil supply, drive its price high and in turn the price of food. This will worsen the world food security issue and increase hunger, malnutrition and death.