Paper Topic:

World oil prices have been high over the last few years and given the increasing demand for the fuel, its prices are likely to remain high could high oil prices be good for the world economy? How? Discuss the impact of these prices on the global economy?

World Oil Price Increases : Detrimental or Beneficial

Oil price increases over the past years have been an issue is closely watched and debated because of its huge impacts around the world . For example , a report by the International Energy Agency (May 2004 ) deemed that higher oil prices since 1999 - partly the result of OPEC supply-management policies - contributed to the global economic downturn in 2000-2001 . Another result of which is that current cyclical upturn ' lagged behind because the world GDP growth may have been at least half a percentage point higher in the

last two or three years had prices remained at mid-2001 levels . The IEA report (May 2004 ) pointed out that higher prices are contributing to stubbornly high levels of unemployment and exacerbating budget-deficit problems in many oil-importing countries . It furthered that the continued increase in oil prices will be deadlier to developing countries because their economies are more dependent on imported oil and more energy-intensive and because energy is used less efficiently . The report informed that oil-importing developing countries use more than twice as much oil to produce a unit of economic output ' and when oil prices are high , their efforts in development will surely be affected

However , in the closer analysis , higher oil prices could do more good than bad in the world economy . The Economist Intelligence Unit (May 2006 ) deemed that although higher oil prices directly worsen a developing country 's trade balance and its current-account deficit that could also reduce corporate profitability and disposable income , this reduction in domestic demand (the painful part , combined with a depreciation in the exchange rate , should be helpful in boosting exports and cut imports . In the end , higher oil prices are helping restore a country 's current-account to its previous position . This is the reason why some developing countries in Asia have been hardly hit by higher oil prices in the recent years

Fuels have been the only category in the primary commodities sector whose share in world trade is continually rising , despite some falls for a short time . In the past , between 1955 and 1985 , the share of fuels in world trade rose from 11 to 18 . The main reason for the increase was the sharp rise that took place in world oil prices in the early 1970s For much of the post-war period , world fuel prices remained roughly constant in real terms . However , in 1973 , the prices roughly doubled The reasons for this are now well known . In 1960 , the world 's main oil-producing countries set up the Organization of Petroleum Exporting Countries (OPEC . Their purpose was to obtain a better price for their oil and reduce the share of the price that was taken by the western multinational oil companies which dominated both the production and distribution of oil . In time , OPEC developed into a classic producer cartel . Controlling as they did well over one-half of world petroleum output , the OPEC countries were able , by placing restrictions on supply to force up the world oil price . They...

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