Executive Pay: The Curious Case of Carlos Ghosn’s Arrest
February 12, 2025
Data can be described as the backbone of any six sigma project. This is because the whole idea of six sigma and operations is to use statistics to manage operations in the factory workshop. Hence, for a six sigma team to understand the types of data and when and how to use them is of […]
The Need for Automation of Healthcare Activities There are many benefits to healthcare providers through automation. Not only will the end to end processing of customer records would be made easier, automation would also result in the actualization of efficiencies and synergies across the entire value chain of activities that healthcare organizations provide. When we […]
Introduction In the modern global and competitive business world, it is very important to the companies to enjoy financial success. This financial success can be achieved through financial discipline, goal setting and periodic reviews. Companies which have enjoyed financial success are likely to see that trust among employees have increased; profit has improved, and employee […]
Obtaining funding for a startup is extremely difficult. It is said that startups receive money only from friends, fools, and family. However, there is another class of investors which provide money to these organizations. They invest in companies which are at very early stages of their product development. They belong to the same ecosystem as […]
Is it Necessary to Discontinue Policies of the Predecessors when Governments Change? You might have read in the news about the decision of the Current Government in Andhra Pradesh, a state in India, to cancel the grandiose plans for the capital of the state chosen by the previous government and instead, go in for decentralised […]
The prices of oil have once again started going through the roof. In the past few years, the prices of oil have seen a steady downturn. This can be largely attributed to the supply gut that was created as a result of a new technology called “fracking.” The world has changed immensely since then. Geopolitical tensions have now created a supply shortage. As a result, the prices of oil are once again on the rise. In this article, we will have a look at some of the geopolitical reasons behind the rise in the price of oil.
There has been tremendous instability in many oil-producing nations of the world. Some of the premier examples are as follows:
Since none of the major oil producing nations in the world is likely to increase the supply of oil, experts predict that the price may even touch $100 per barrel by 2019. The drop in prices was due to increased supply which resulted from fracking. However, geopolitical tensions have nullified any increase in supply, and the situation seems to be going back to where it started from.
An increase in the price of oil is bad for many economies. For instance, let’s consider the effects on the Indian economy.
High Import Dependence: India is a developing country. As a result, their energy consumption is very high. Also, India does not have its own sources of oil. As a result, it imports more than 80% of its oil requirement. Hence, if the prices of oil double over the period of a year, the import bill of the nation will also double in the same period. India has paid over $110 billion in order to import oil in the year 2017. This figure is likely to double even if the exchange rate is held constant.
Exchange Rate Woes: The Indian rupee has already depreciated against the United States dollar. This is because people are trying to change their rupees for dollars. If the price of oil increases, the government will also be forced to exchange rupees for dollars. Since the import bill is going to be double as compared to last year, it will put tremendous pressure on the rupee. The end result will be a further severe drop in the value of the rupee. The drop in the value of the rupee will force the government to sell even more rupees. This will end up creating a vicious cycle that will bring the economy to a grinding halt.
Hurt the Economy: Many sectors of the Indian economy are dependent on the prices of fossil fuels. For instance, the auto sector is a major contributor to employment in the country. However, since the prices of fuels have risen so much, people are refraining from buying any new cars. This is impacting the profit margins of these companies which is indirectly having a spillover effect on other sectors of the economy as well. Just like automobiles, people have reduced the purchases of generators or any other products which use fossil fuels as inputs.
Discretionary Spending: Higher fuel prices are taking a toll on the Indian consumer. On the one hand, their incomes are not rising because there is a recession in several industries in the market. On the other hand, a rise in fuel prices is eating up a major portion of their income. Rising fuel prices are leading to significant inflation. Hence, their discretionary spending is also being lowered. The end result is the aggravation of the vicious cycle that has already been mentioned above in this article.
The rise in oil prices is likely to make the situation worse for the government as well. Every $10 increment leads to an increase of about $10 billion in current account deficit. Rising oil prices also reduce the GDP by about 0.5% for every $10 increase. Hence, just like the people, the government is also facing a double whammy.
This is the reason why rising oil prices have been mentioned as one of the main threats to the Indian economy.
Your email address will not be published. Required fields are marked *