The crisis in Europe is not over and US economy is still struggling to cope with the post recession environment. Amongst all this the news of crude oil hitting the $100 per barrel mark is not seen as a very positive sign for struggling economies. On the other hand it would provide politicians with an excuse to justify their failing policies.

The global financial crisis that started in 2009 was one of the greatest since the Great Depression of 1929. It was an unprecedented event in the history of the modern world that left a lasting effect on the financial well being of millions of people around the world. The crises also showed the light to many nations who are extremely vulnerable due to their over-dependence on crude oil exports as their major source of foreign exchange. The situation becomes even more alarming for these nations as the pressure from international environmentalists on climate change is increasing with every passing day. For example the passing of the American Clean Energy and Security (ACES) Act of 2009, by US congress which was aimed at reducing the country’s oil import and carbon emission by one-quarter in the next 25 years.tahir123tahir

Oil is a lifeline for global economy and there is no doubt about it. The emerging economies increase have a resounding affect on the supply and demand of oil and extremely cold winter in Europe as well as steady economic growth in China, India and Brazil is keeping the oil prices at the higher end. This increase in the oil price is turning out to be a nightmare for the slowly recovering economies of Europe and the United States. These increases could seriously hinders the ability of industries to recover and create jobs as a major chunk of the recovered fiancés will end up footing the bill for energy. This specifically turns out to be a very unpleasant moment for Britain, Spain, Greece, Poland, France, Ireland even Tunisia in Africa, where governments are facing the heat from their angry citizens on the introduction of austerity measures to manage their wobbling economies.

The rising energy costs affect the prices of food directly and in the end increases the affect at a larger level. The riots in Tunisia are a prime example of hoe the increasing oil prices could push a country to the brink of civil war or revolution. But the link here is clear, increasing oil prices affecting the price of food and making the life of a normal citizen unbearable forcing him to come out on the streets.

A glance at the performance of world economies shows that German economy remains the strongest among Europeans with a successful inflation management. On the other side of Atlantic American economy recorded slow growth of three per cent. Indeed this increase in oil prices was one of the major worries of G-8 and Organisation of Economic Co-operation and Development (OECD), leaders.

So the affect of increasing oil prices and heavy dependence on crude oil as a source of energy is having a dual affect. On one hand it is creating outright problems for world economies and on the other hand it is forcing world leaders to start looking for alternatives more than ever.

Food prices are not the only affected of the rising oil prices. The political leadership is not immune to this either where we saw from Wikileaks revelation that Shell has such pervasive influence in Nigeria to the extent that some experts believe “Nigeria is Shell and Shell is Nigeria”. So the rising oil prices give a new tool to industrialised nations to manipulate the political developments in the countries that produce oil or use it as a large part of their energy requirements. This is a revisit to the situation in the 1980s when Margaret Thatcher and Ronald Reagan collapsed the global oil market using Saudi Arabia and Kuwait. This as a result instigated late Iraqi President Saddam Hussain to invade Kuwait in August 1990. Or acted as one of the prime reasons given by Saddam Hussain.

The lesson for oil consuming nations is to increase their efforts to reduce their reliance on oil as a source of energy, especially for transportation. Just European Union has seen its import bill rise by $70bn during 2010, which is equal to the combined budget deficits of Greece and Portugal.

The worry right now is that if oil prices continue to rise at the same level it could bring us the same financial crises once again as we saw in 2008. This time the governments would not be able to act as affectively as they managed to do in 2008. It is also a time for the oil producers to look at a broader picture and increase the oil production in order to ease the pressure on world economy that at the end will benefit them in the longer run.

Written by tahir