Sunday, March 13, 2011

Oil price rises and natural calamities threaten the global economy

It is interesting to note the effect of oil price rises and natural disasters on the global economy, and Western economies in particular.

Three recent examples are:
  • The 2011 Australian floods
  • Increased oil prices due to unrest and regime change in the Middle East and North Africa, particularly the civil war in Libya
  • The devastating Japanese earthquake of 11 March 2011



Oil price rises put immediate pressure on items like:
  • Retail expenditure - household disposable income drops when fuel prices rise and people stop spending
  • Inflation - price rises effectively devalue the currency
  • Increase transport costs - leading to an increase in business costs and price rises for many other good and products, including food.
  • A negative impact on exporters
In summary, higher oil prices act as a brake on global economic growth.  This may not be a bad thing as unlimited growth is clearly not sustainable.

However, it seems that governments and policy makers are not dealing with the reality of peak oil, rising oil prices and transitioning to the low-oil and low-carbon economies we need to cope with depletion of fossil fuels and emission reductions to help combat climate change.

Petrol has reached around AUD $1.50 a litre in Australia.

What will the impacts be when it reaches $3.00, then $5.00, and eventually $10.00 a litre?  Very serious, it would appear.

Australia's oil and gas industry is worth $28 billion in the 2009-2010 year.  We would be better off spending a large proportion of this money on transitioning to sustainable transport and energy use.

The devastating Japanese earthquake of 11 March 2011 has caused jitters throughout the global economy.  While the earth quake is not associated with climate change, it demonstrates how disruptive natural calamities can be.

It is clear that we should reduce carbon emissions locally and globally to help reduce or prevent events linked by science to climate change such as floods, droughts and bushfires.

External links

No comments: