Oil and world Economy

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Oil and world Economy

Question: Examine the oil industry in relation to the world economy, utilising any economic theory / theories you think appropriate.

One of the most important energy resources since human invested the machine is oil and its products. But as all resources scarce, oil is limited even more. Only few countries in the world have oil fields and produce oil for the rest. Therefore, in nowadays where factories, cars and oil-fired central heating increased significantly, oil has become a necessity for the society.

People’s demands for oil and its products, fuel, gas and oil for central heating is unlimited, but supplier countries produce a fixed number of barrels of oil everyday so as to maintain a technical shortage and, of course, higher profits. These few countries are the oligopoly of the industry, have a market leader and there are barriers to the entry of new countries (Sloman 1997 : p.124). These countries are dominating the market of oil and created the Organization of Petroleum Exporting Countries (OPEC) in 1960’s. OPEC is an intergovernmental organisation that offers stability and prosperity to the petroleum market. Membership is open to any country which is a great net exporter and which shares the same ideas of this organisation. OPEC has now 11 members and supplies more than the 40% of the worlds oil market.

The price of oil over the last year has increased approximately over 100%, reaching the highest levels over the la...
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