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Impacts of Looming Oil Crisis on Global Trade



The availability of oil is taken for granted every day by businesses, governments and individuals alike. However, an oil crisis is looming and could feasibly hit at any point. This brings back memories of the oil shortages during the 1970s, which had a major impact on the economic growth, particularly in major industrial countries such as United States.

During the 1973 oil crisis – an embargo was initiated by the Organization of Petroleum Exporting countries (OPEC) to protest against some of the American trade practices. As a result of this embargo, the price of oil increased by 300%, causing widespread oil shortages and in some cases forcing petrol stations to close.

Experts are warning that a similar crisis may be imminent due to Western countries’ presence in the Middle East causing friction with some of the OPEC member countries. Oil prices have been increased in many areas in an attempt to reduce consumption levels and preserve our natural resources for future generations. However, research has indicated that despite these measures the consumption of oil continues to increase, with an estimated 89 million barrels of oil being used globally every day.

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Should a crisis like this hit, the effect on the global economy will be huge – importing materials and goods has become an essential practice for larger organizations, but any increase in oil price would dramatically increase the transportation costs of importing and exporting. As a result, companies would need to either seek cheaper alternatives, or more likely raise the cost of their end products, something which will slow the growth of the economy and prolong the recession.

Travel has become a major source of expenditure for large firms, with employees often flying to business meetings internationally as well as domestically. Budget airlines’ turnover has grown throughout the recession as a result of the increase in business travel. However, any increase in the cost of oil would force these airlines to pass the costs onto their customers in the form of increased air fares. In the event of another oil crisis, businesses which currently have large travel expenses would suddenly find themselves with vastly increased overheads, and have a sudden need to explore cheaper alternatives which may not suit their business plan. Transportation is by far the biggest cause of oil consumption, with this sector estimated to account for more than half of all consumption worldwide, and more than two thirds of consumption within the US.

As well as increased transportation costs, the costs of operating machinery would also increase during an oil crisis, leading to increases in the cost of many essential items, including foodstuffs. As with the rising cost of transportation, any increase in the cost of foodstuffs will most likely result in prolonging the recession.

Experts are unsure when another oil crisis might hit, but most experts agree that a crisis of some sort is likely to occur soon. Whilst the exact effect it will have on the world economy cannot be accurately predicted, there is no doubt that businesses of all sizes will be compelled to adapt very quickly to continue trading.



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