Economics essays

free essayOil prices have fallen sharply in the past few months from 100 to 40 USD per barrel (“Crude Oil”). The decrease in oil price levels has revealed many of the problems of countries that are heavily dependent on oil revenues, such as Saudi Arabia, Iran, and Russia. There are numerous reasons for such a slump.

The most obvious cause of lower oil prices is the global economic crisis, which led to a decrease in demand for petroleum products. It also reduced growth rates in most countries, especially those of the European Union. An increase in the level of supply over demand also played a significant role in oil price collapse, especially with the entry of new countries into the oil market of Africa and South America. New oil discoveries of huge reserves forced the OPEC nations to decrease the oil extraction by about a third. Such a fact led to a decrease in the role of OPEC in pricing. Nonetheless, OPEC is still effective but its role has fallen in comparison with previous years. Moreover, a role of the market as a factor of price formation is constantly growing. Economic globalization is characterized by the opening of new markets and competition in general. Therefore, the energy prices began to be influenced by this competition because the OPEC members try to keep their markets, but it is not an easy thing to do due to the oil abundance.

Shale oil is another significant for oil prices decline. Manufacture of oil shale in the United States has turned it from the major oil consumer in the world to a self-sufficient country, which is ready to export oil to other market participants. Moreover, USA has become a model for other countries, which are now trying to find the natural oil reserves. In addition, oil theft and smuggling by ISIS and other terrorist organizations reduced oil prices even more by selling it at a lower price, which is much less than the market one. The gradual decline also comes as a result of the search for other energy sources, such as the nuclear energy or renewable energy sources. Finally, the continuing call for conservation and protection of environment reduces the use of polluting energy sources, which threaten human life by increasing the speed of global warming.

The Impact of Falling Oil Prices on Saudi Arabia

Saudi Arabia is one of the largest oil-producing countries in the world, the first-ranked country in OPEC, and one of the largest exporters in the world. Saudi Arabian oil has a relatively low cost of production. It is also the first in the world in the number of natural oil reserves.

Get a price quote


The state decided not to reduce oil production, which has caused a lot of criticism at the OPEC meeting 2015 (AFP). It was even accused of implementation of the US plan aimed at weakening Iran and Russia. Saudi Arabia tried to explain its decision by the fact that the oil price has become associated with the market’s supply and demand rather than with the countries.

In fact, the state’s decision not to shrink the oil extraction has multiple goals. For example, the country, perhaps, wants to reduce or even stop the production of shale oil. Saudi Arabia has a lot of money in hard currency and a low level of public debt. In fact it is currently the lowest debtor among the twenty countries in OPEC. Therefore, the Arab state can cease production of American shale oil through an oil prices drop to 30 USD per barrel, because it can withstand the losses caused by such a reduction. For example, it had a deficit in the general budget of about 50 billion USD in 2015 (AFP). However, Saudi Arabia can afford such a money shortage for a decade because of the vast reserves (AFP).

The Impact of Falling Oil Prices on Iran

Oil is the main source of income in Iran, although the country has economic, industrial, and agricultural industries (Solomon and Said). However, the country has been suffering from severe economic sanctions for many years, which had a negative impact on the oil industry and other sectors of the economy. It should be noted that Iran has been also experiencing negative effects from reduced domestic oil production for a long time. For example, it produced 3.58 million barrels per day in 2011, while the amount of oil produced in late 2014 was 2.77 million barrels per day (Khajehpour). Such a substantial slump can be explained by the lack of investment and difficulties in obtaining the necessary equipment to increase the production.

Currently, the decline in oil prices creates a strong pressure on the Islamic Republic of Iran and leads to a large reduction of investments in the energy sector. However, it is possible that it will not significantly affect the Iranian economy and policy in the region because Iran may start to develop other sectors of the economy over time. Sanctions have become a primary cause for the drop in oil production because the number of planned tasks and projects cannot be realized without the Western drilling techniques such as the Arctic shelf development. The increase of production using current sources of oil will not be possible because the old deposits are close to exhaustion.

Our outstanding writers are mostly educated to MA and PhD level

The Impact of Falling Oil Prices on Russia

Oil is the foundation of the Russian economy and the basis for playing an important role in international politics after the collapse of the Soviet Union. Oil revenues are a source of financing rearmament, as well as the main source of Russia’s budget. The Russian Federation is one of the most important oil-producing countries in the world, producing more than ten million barrels of oil per day. Russia loses approximately two million dollars if the oil price per barrel drops for at least one USD. Despite this, Russia has decided not to cut the oil production because it is afraid that other countries will take its place in the oil market by increasing their production (Agerton).

The country is experiencing a sharp fall in its national currency because of the reduction in the price of a barrel of oil. The Russian Federation exchanged their hard currency reserves in an attempt to keep the ruble from falling and to align the exchange rate. Currently, Russia is subject to the United States’ and the European Union’s economic sanctions. In spite of the oil price impact on the Russian economy, it has an industrial and economic potential as well as such raw material such as gas, gold, and so on (“Russia Analysis”). However, it is possible that lower oil prices will hinder Russia to return to the international arena as a major force, as it was in the Soviet era.

How It Works

1. Place an order
2. Make the payment
3. Download your custom written paper

Decline in Oil Prices and the Political and Economic Consequences

Is the decline in oil prices caused by supply and demand or is it a political and economic goal? Simply put, there is no economics without politics and no politics without economics. That being said, there is a clear connection between politics and economics, and Charles de Gaulle proved this point by stating that domestic capacity and foreign independence are two aspects of a single situation (Morse 118). From the economic point of view, it must be admitted that the recent discoveries of oil deposits in the world, as well as technological development of shale oil, largely contributed to the increase in supply over demand. As a result, the importance of OPEC in the world oil market fell. From the political point of view, the effects of low prices influenced many oil-producing countries, especially Iran, Russia, and Saudi Arabia.

The political consequences can be divided into external and internal ones. Internally, the decline in oil prices threatens the political stability within the countries because it will affect the price of social services the stability of these countries depends on. Externally, the fall in oil prices may affect the foreign policy of Iran and Russia. Perhaps, the impact of such influence will be insignificant in strategic matters, but it may represent a serious blow to the economic stability. As for Saudi Arabia, it will need to adopt a new economic policy that is not based on the income from oil production and develop it sustainably, as well as carry out multiply reforms in various sectors of the economy.

Our Customer Support Team is at Your Disposal 24/7

Conclusion

Ultimately, one can say that Saudi Arabia is considered the most important player among the listed countries in terms of oil production. This role may become even more influential in this situation in the world oil market. Given the above, price of oil has become closely associated with the supply and demand on the market rather than the domestic situation of the exporting countries. The consequences of the decline in oil prices will affect Iran in the strongest way, and then there will be a significant impact on Russia, while Saudi Arabia will experience virtually no negative consequences at all because the degree of influence depends on the country’s budget.

How Oil Prices Impact the Economy

Oil prices have fallen sharply in the past few months from 100 to 40 USD per barrel (“Crude Oil”). The decrease in oil price levels has revealed many of the problems of countries that are heavily dependent on oil revenues, such as Saudi Arabia, Iran, and Russia. There are numerous reasons for such a slump. […]

Principles of Microeconomics: Flying Automobiles

Technologies develop rapidly making people’s lives easier. Some innovations are accepted, while others, like novelties, can be rejected if consumers do not understand them. However, the image of flying car has been showed in the movies and described in the books for a long time now. Thus, this fact may show that people are ready […]

Public Economics

Marine biological diversity conservation falls under International environmental public goods (IEPG) if its benefits spill over to the advantage of other countries. However, marine biological diversity is an impure public good both at the local and global levels. Impure goods refer to the type of goods that are either partially excludable or rival and divisible, […]

Explain the Paradox of Electoral Economics

The economic state of the Europe is said to have grown rapidly since the end of World War II. Some factors contributed to this bloom in the economy. However, any talk about the sudden sprouting of the European economy cannot be complete without mentioning of the paradox of electoral economics that came in handy during […]

Globalization in the United Arab Emirates

Globalization is a powerful process in the world culture, economy, and politics. It has changed the global surrounding both positively and negatively. The main characteristic of globalization is that it blurs the boundaries between countries, transforming them into a great socio-cultural community. Consequently, there are no specific limits between cultures, economies, and social institutions (Paul, […]

Free-Market Model of the Economy

The Anglo-American free-market model of the economy refers to a free-market model of the economy in which there is a flexible labor force, low levels of government involvement, and high levels of private entities’ rights. The Anglo-American free-market model of the economy is a capitalist model that emphasizes on the low levels of regulations in […]

GCC: Oil and Banking System

The prices of oil have rebounded in a vigorous manner from their trough at the beginning of the year 2016, and they are expected to provide a moderate rally in the years to come (Alodayni, 2016). The slump in price has led to macroeconomic pressure on the economies that are engaged in oil exports as […]

Canada-EU Comprehensive Economic and Trade Agreement (CETA)

Canada is one of the most dependent countries on trade. For Canada, it is critical to have strong multinational ties to achieve an economic growth and sustainability. One of the most important negotiation partners is the European Union (EU), which is the second largest investment and trade partner after the US. The paper describes the […]

The Idea of Drilling for Shale Oil

Is drilling for shale oil within the USA the best strategy for the country to achieve energy security or are there better methods? There is a debate concerning the issue of the oil imported from Canada in order to increase non-OPEC oil import being the best solution. Some people believe that investing in non-oil sources […]

The Impact of Logistics

In the contemporary dynamic competitive environment, the successful operation and development of enterprises depends on the quality, speed, reliability, and efficiency of logistics significantly. The transformation of industrial relations and the change of the legal form and nature of the relationships of business entities in the economic system are the primary determinants of the development […]

Infrastructure Issues and Economic Development

The connection between infrastructure and economic development should be studied at a local level as infrastructure investment decisions are predominantly approved locally. Local economic development and activity are stimulated by community groups that divide their resources and conduct partnership arrangements with the private sector and with each other. A valuable challenge is support of the […]

Metropolitan lssues in an Economic Development Meeting

Economic development meetings are those that are set up with the aim of planning on how to boost the economy of a given area. Economic development is a crucial concept that is incorporated in every society for its well-being. These meeting are regarded as beneficial meetings in the society whereby it is able to improve […]

The Effects of Entrepreneurship

A series entrepreneur who has founded ABCMaterials, listed among the America’s Most Promising Companies by Forbes, has aptly noted: “There are people who love to sail the ocean or climb mountains, and more power to them – but it is nowhere near as interesting as taking a technology nobody has heard of, finding a market […]

Globalization in Canada

The Canadian record on Globalization shows a mixed picture. Externally, Canada seems to have embraced globalization with the US Free Trade Agreement and, subsequently, NAFTA. A crucial factor, which should be taken into consideration, is the great free trade debate, which happened 20 years ago when Canadians from all walks of life got confused whether […]

Issues in Taiwan Banking System

Taiwan banking sector is very vibrant, though it can be considered overbanked. Presently, there are 40 domestic banks, 25 credit co-operatives operating in Taiwan that offer credits to business people and members of the cooperatives and 28 foreign banks with a presence in Taipei (“Treasury management profiles: Taiwan”, n.d.). These are totals to over 93 […]

US Economic Forecast

It is very hard to predict future economic, political and demographical processes that influence the policy of the organization. However, using different forecasts I will try to formulate some recommendations about company’s internal and external policy for improving its present position on the market, developing new strategies and enhancement relations between employers and employees. Below […]

Economy and Standards of Living

The essay delves into the matter of economy and living standards in five cases such as the measure, which shows the general standard of living of American people; inflation and its impact on standard of living; technology development, its impact on job markets and standard of living; the growth of the economy, its importance to […]

The Process of Transportation of Egyptian Bed Sheets to the USA

High Quality of Egyptian Cotton Egypt is widely recognized as a country that produces high quality cotton for bedding. Egypt is called ‘king of all cottons’ because of the highest quality of manufactured cotton production (Taylor Bed Sheets, n.d.). Usually, manufacturers use special types of plants to produce Egyptian cotton commodities. These plants are Gossypium […]

Effects of Media Art to the Indigenous Community in Australia – Essay

Most professions in the career development are aimed at providing services to the immediate and the indigenous community. It is therefore important for an individual to understand the effect and the role of the discipline or profession which one is interested to attain in order to understand what kind of service this individual will give […]

The Social and Economic Effects of Tourism in Developing Countries

Tourism has now become one of the largest and dynamic sectors of external economic growth of all countries across the world. Its enormous growth with inflow of significant volumes of foreign currency, infrastructural development, and introduction of economic reform systems that affect several sectors of economy, undoubtedly contribute to the economic and social development of […]

Why is the Strait of Hormuz Important?

The Strait of Hormuz experiences the passage of ships that carry about 16 to 18 million barrels of oil and not less than 2 million barrels of petroleum products. This is about 40 per cent of all the oil and petroleum products traded in the international market. According to Bumiller, Schmitt & Shanker (2012), this […]

Money in the Management of Our Economy

“Money is the opposite of the weather. Nobody talks about it, but everybody does something about it.” – Rebecca Johnson Money is one of the greatest inventions of humankind. It is the most fascinating aspect of economics. Money bewitches people. Persons suffer because of money and are working for it. They come up with the […]

The Smallest Monthly Wage Paid to an Employee

The minimum wage is the statutory minimum level of payment for workers in the whole country or for specific categories of employees. “The primary goal of any minimum wage policy is to increase the income of those at very bottom of the wage scale” (Waltman 8). The minimum wage value is not always linked to […]

Dubai Foundation for Women and Children

The United Arab Emirates (UAE) is dedicated to achieving its efforts to promote fundamental human rights. These efforts are in alignment with the Federation’s identify and unique distinctiveness, and in cooperation with both non-governmental (NGOs) and intergovernmental organizations (IGOs) in relation to human rights. The UAE has made significant developments in this area in the […]

Price Discrimination

The recent market of academic journals faced various negative issues. The main disadvantage of this market is that most of the publishing companies are focused on profits and create discriminative price strategy. Oligopolistic firms made the market imperfect due to the sophisticated price strategies. There is an opinion that, as the main buyers of academic […]

Financial

1.Financial market and the types of transactions supported by it in the U.S. and global economies. Determine how valuable these transactions are to the overall U.S. and the global economies. Capital Markets The capital market forms a place, where different institutions and individuals trade financial securities. Institutions and organizations in the private and public sectors […]

Effective Types of Entrepreneurship

The work under discussion investigates whether the whole entrepreneurial activity truly affects the growth of GDP on the example of certain companies activities through different types of entrepreneurial activity and on the basis of many countries development and growth of their economies per capita. Growth competitiveness index is used as a form of adjustment in […]

Disaster Management Systems

When a natural disaster occurs, there are emergency crews like ambulances, fire department and police ready to help the affected people out. Socialism system gives the best solution in taking care of emergency situations like floods; hurricane or forest fires (Schneider, 2011). This is because the government gets involved in paying the people involved in […]