Impact of Rise in Oil Prices on Economy
by Impact of irregular and unexpected oil price rise endanger the already existing economic condition.High oil prices have damaged Pakistan’s economy very significantly, causing inflation, trade deficits, and balance of payment problems, currency depreciation and shortage of energy.Around 30 percent of the country’s installed generation capacity is based mostly on furnace oil. It is high time now that the country should revise its energy mix and start making actual improvement.If oil crosses its current resistance level to $150-$200 per barrel there will be further deterioration in trade.
Impact of rise in oil prices on economy
By Mohammed Arifeen
The current oil price is hanging around $101.93 a barrel. Its fluctuations continue to pose a serious threat to both developed and developing countries. For oil importing countries like Pakistan the impact of irregular and unexpected price rise endanger the already existing economic condition.
Oil price rise are creating acute energy shortage in Pakistan which is now leading into hike in general prices, transportation cost, slackening agricultural and industrial activity. This is having a tremendous financial effect on our competitiveness in the external sector, creating record trade deficit and balance of payment gaps and eroding our foreign exchange reserves.
Brent crude oil prices grew around $94 a barrel at the start of 2011 to around $108 a barrel. Citigroup analysts have raised their forecast that Brent crude oil prices should trade in a range of $100 to $120 a barrel and to average $110 for 2012. US conflict, may sky rocket the oil price to $200 or above.
Pakistan imports a large amount of oil to the tune of 10 to 11 billion dollars per year, which accounts for 33 percent of its total imports. High oil prices have damaged Pakistan’s economy very significantly, causing inflation, trade deficits, and balance of payment problems, currency depreciation and shortage of energy.
Among the oil importing countries, the largest impact on GDP growth and the balance of payments is anticipated to be in India, Korea, Pakistan, Philippines, Thailand, and Turkey. The oil price increases will affect China’s economic recovery, but the direct effect of oil price hikes on China’s economy would be much less than that on most Asia-Pacific countries.
Exports in Pakistan have increased by only 72 percent since 2002‐03, whereas on the other hand imports have increased by 227 percent. This widening gap has caused the current account to continuously report a deficit, which is growing at frightening levels. By the end of 2007‐08, total imports stood at around $40 billion; more than twice that of exports.
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