The general environment, oil price increases generally increase








overall consumption of crude oil will have to be reduced

oil production will increase

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will have to import Oil from Middle East

can the U.S. do?


US may face threat of bombing
by Iran

Airbus may also face
difficulties with its sales to Iran

Boeing’s deal to sell planes
to Iran could go for a toss

US dollar will depreciate as a result of the high price of
oil and thus all other currencies will appreciate so there will be inflation
all over the world like 2008 all over again. Other probable effects are:-

Effects on US:


China’s excessive GDP growth adds a premium to the price of oil which
increases over time. The externality costs are increasingly higher as China
continuously grows at a fast pace. The results have policy implications in terms of
the sustainability of the Chinese faster growth.

on China:-

there will be a higher current account deficit as India imports 80% of its oil.
Higher input costs in various industries will lead to higher overall inflation
and hence lower profitability for several industries. All these factors will
lead to a depreciating INR. As a result, the stock markets will fall and in
general slow down the investment cycle. This will lead to a slow productivity growth
in India and slowing GDP.

Effect of High Oil price on India:


Also, in macro-economics,
high oil prices can shift up the supply curve for the goods and services for
which oil is an input. For example, supply of cars will reduce and people
will have to heavily depend on pooling. Giant oil prices also can reduce the demand
for those other goods because they reduce wealth as well as induce uncertainty
about the future.

In April, President Trump, will refuse
to certify Iran’s compliance of terms and oil prices will rise up to 80 per
barrel (Current Oil Price is 64.67 USD a barrel). How increase in the oil
price would affect households and businesses is at the micro level. But
considering the general environment, oil price increases generally increase
inflation and reduce economic growth.  In
terms of inflation, oil prices directly affect the prices of goods in the
industry which is directly dependent on petroleum as the main raw material,
indirectly affecting costs such as transportation, manufacturing, and heating.
Mainly, the Airlines and other transport will suffer along with the automobiles
industry. The rise in these costs can adversely affect the prices of a wide
range of goods and services, as producers will pass production costs over to
consumers. Basically there will be a period of stagflation.  Hence it
is no surprise that changes in oil prices are viewed as an important source of
economic fluctuations.      


Trump has recently signalled that he may not be certifying that Iran is
complying with the terms.

Joint Comprehensive Plan of Action also known as the Iran nuclear Deal is a
preliminary framework agreement reached in 2015 between the Islamic Republic of
Iran and—the United States, the United Kingdom, Russia, France, China and
Germany and the European Union.


number- CMM043

Pranu Hans


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