The Politics of Oil



The plummeting price of oil is still the biggest news headline across the world. Between late June and the beginning of Feb 2015, the price of crude oil has fallen by 38 per cent. This is a big decline. But the world has experienced similar scale oil crises in the 70s and 80s.

Since the end of World War II, the real price of oil had steadily declined; a barrel of crude cost less in 1970 than at any time since the Great Depression. In 1973, Arab oil producers imposed an embargo to boycott America and punish The West in response to support for Israel in the Yom Kippur war against Egypt. This led the price of crude to rise from $3 per barrel to $12 by 1974.

By putting an end to decades of cheap energy, the 1974oil crisis exacerbated the economic difficulties facing many industrialized nations, forced developing countries to finance their energy imports through foreign borrowing, and generated large surpluses for oil-exporters.

In 1986, the world witnessed another Oil crisis. Itwas a result of serious surplus of crude oil caused by falling demand. The world price of oil, which had peaked in 1980 at over US$35 per barrel, fell in 1986 from $27 to below $10 leading to the collapse of Soviet Union.

The most recent oil plunge that started towards the end of 2014 is one of the biggest factors reshaping the global economy today, with ramifications for every country in the world. Low prices are excellent news for oil consumers in places like India, Japan or the US, where gasoline is the cheapest it’s been in years. But it’s a different story for nations reliant on oil sales such as Russia, Venezuela and OPEC members.

The financial crisis of 2008, geo-political conflicts and the most recent oil crises are all causing long-term changes in the way individuals handle personal finance. At a personal level, saving money on a regular basis is the most effective way of building up capital. We at Gladstone Morgan recommend saving plans customized to each individual. Talk to Dino Zavagno or a member of his team for more information on this topic.

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