OIL PRICE VOLATILITY 

EFFECTS ON NATIONAL ECONOMIES AND GEOPOLITICS

In remote village in Venezuela a single barrel of oil represent both despair and hope for local community .  It is often referred as  "the life blood of modern civilization" and is one of the strongest sector  economically . The oil economy refers to complex global system of extraction, production,  refining, distribution and consumption of petroleum products with having its profound impacts on geopolitics , economies ,and the environment.  So lets delve deep and  understand about  the oil economy and its direct relations with geopolitics , market dynamics and the environment.

LETS DISCUSS

The oil economy began with the discovery of oil fields in the 19th century. The first commercial oil well was drilled in year 1859 in Pennsylvania , marking the start of modern oil industry. In the wake of industrial revolution oil became the critical fuel leading to the development of the internal consumption engine and widespread use in transportation and industry .

The early 20th century saw formation of major oil companies like Royal Dutch Shell. As there countries started to understand the worth of oil a global race started for oil exploration which lead to significant discoveries in Middle East , Latin America and North Africa . As the oil was discovered in different parts of the world , countries with oil wells  understood very well that a regulating body was needed  to coordinate petroleum policies among its member countries, these thought gave birth to the Organization of the Petroleum Exporting Countries  [OPEC]  in 1960 whose aim was to coordinate and stabilize prices of oil in the market .

The October 1973 oil crisis marked a significant moment of dominance for oil-producing countries.

Lets discuss case study in short

In October 1973, Syria and Egypt launched a surprise attack on Israel. When the USA provided military support to Israel, the oil-producing countries imposed an oil embargo against the US and other nations perceived as supporting Israel. This was the first time oil was used as a political weapon to influence Western foreign policies concerning the Middle East. The impact of the embargo led to a significant increase in oil prices, from around $3 per barrel to nearly $12 per barrel. This caused inflation and economic recessions in many Western countries.

The crisis highlighted the vulnerability of oil-dependent economies and led to changes in international relations and energy policies.

As time passed, new players entered the oil market, making it more volatile in every aspect. The major entries were the USA and Russia. While Saudi Arabia became the world’s largest oil exporter and the leader of OPEC countries, it also maintained significant oil reserves, providing flexibility to adjust production in response to market changes. To counter this, the US maintains the world’s largest emergency supply of crude oil, influencing market stability during disruptions. Russia, being part of the OPEC+ nations, collaborates with OPEC countries like Saudi Arabia to manage oil production and market stability.

The oil economy impacts a country’s budget to a household person.

In 1859, the discovery of oil in Pennsylvania sparked a revolution that would transform global economies and geopolitics for generations. The ensuing scramble for control saw the rise of oil magnates like Rockefeller and positioned countries such as Saudi Arabia at the centre of power dynamics. The dramatic shifts in oil prices, with their booms and busts, have continuously influenced world markets. Overall, the oil industry faces an uncertain future, and its fate is directly connected to our own