The Impact of the Soaring Oil Prices on the World Economy

When oil prices hit in 2004 record levels of more than $40 a barrel, some feared that such spike would disrupt the world economy by slowing down its growth, which would in turn restrain the demand for oil. Yet, the opposite took place.

With a record 4%, the economic growth registered in 2004 its highest rates in the world history. So had the demand for oil, with a ceiling of 2.8 million b/d.
But in 2005, oil prices resurged, standing for few months, at $70 a barrel, consequently, fomenting fears that such spike might hamper the world economy. But the latter has not the least slackened. As proof, the economic growth amounted to 2.7% in the OECD countries and 3.6% in the United States. In parallel, the demand for oil kept on mounting reaching 1.2 million b/d in 2005.

On the other hand, many studies and reports have highlighted the flexibility of the global economy in responding to the suddenly skyrocketing oil prices. It has also tackled the worries questioning whether prices lost their usual impact on the world economy and its growth. In addition, most studies have determined the basic factors characterizing the current relation between oil prices and the growth of the world economy:

First, the efficient energy use, especially in the major industrialized countries. For instance, the United States, engine of the world economy, has recently curbed its dependence on oil, the basic energy source – a measure standing in sharp contrast with the US consumption patterns during the two oil crises in the 70s and 80s. Even more, estimates reveal that compared with the 70s and 80s, the developed countries only use nowadays half the oil quantity for every real dollar of the GNP.

Dar Al Hayat