Energy in the Middle East
Iran is a country that has been surrounded by controversies since time immemorial. Different states, especially members’ states of the United Nations, have been against the intention of Iran to continuously want to make weapons that may compromise world peace. These include nuclear weapons, which may cause destruction to the whole world. The country has been at war with the Americans, leading to the death of several soldiers and civilians. It, therefore, means that Iran has created enmity with various states in the world and this has impacted a lot negatively on the country. It has lost prospects of trading with certain countries in Europe and the USA. This has come through sanctions that have been imposed on it. Iran has also responded angrily to the imposed sanctions by refusing to export its oil to majority of states in the world. These states include European Nations and Canada. Some of these nations have been forced to seek oil prospects elsewhere in the world. It is difficult for a country to operate without oil, actually close to impossibility.
This report seeks to identify some of the effects that the shortage of oil will have on economies in the world. Apart from causing escalation in prices owing to inflation, development is likely to remain stagnant. Others countries may experience slow development as most of their projects rely on oil. Oil refineries will suffer a big blow since their main role is to refine petroleum. This will cause employees to be laid off since there shall be shortage of funds to even afford a salary for them (Thomas, 1985). The report also outlines the methodology, used to reach to the report. It is based on consultation and wide research. Interviews were conducted by my team and me into the current effects that are already being felt.
First, the ban on oil will affect the economy of Canada and the world generally in terms of infrastructural development. Construction cannot proceed without the presence of petroleum products. Construction cannot proceed without the availability of petroleum products such as diesel and petrol. The ban on export of oil to European nations will, therefore, affect the construction in that the required excavators cannot function. The work will get to a standstill until alternative sources of power are found. Some of the petroleum products required in this industry include petroleum products such as tar, which is poured on the tarmac for purposes of enhancing strength and durability of the roads. Grease and other lubrication products are required for lubrication of machines needed for construction; hence, the ban will bring about a shortage of the same (Rebucci, 2007). The effect on construction procedures will bear negatively on the people that were employed in the firms. An economy with a greater number of people now being laid off work will not augur well. Instead, greater number of people will be getting into crime as they cannot fend for themselves and their families. It will also mean that projects that were underway will have to be postponed until the crisis is resolved. During this time, more tax payer’s money will be spent on the projects than planned. This will be an extra burden to the already overburdened tax payers in different states.
Ideological differences and a cold war period will definitely be in existence in the world. The states affected obviously have allies who rally behind them. The European nations have their counterparts in Europe and the United states supporting them. Other countries such as Iraq are in support of Iran. The consequence of this will be a world in which there will be numerous challenges on who is stronger than whom. Iran will definitely try to prove its muscle by failing to relent in its stand. On the other hand, European states will do their best to solicit oil from other parts of the world. The common man will be suffering since he will be the victim of all injustices including exorbitant prices for majority of commodities. Certain states in the world for instance India has received threats of possible sanctions if they continue purchasing oil from Iran. This has come after the immediate response of India to continue buying oil in Iran. The government of India says they need this oil to survive. Such differences in ideology will impact on the economy of such states as India especially if trade sanctions are imposed.
Businesses will be affected due to shortage of oil. Because of this, some businesses will have to be shut down due to failure in operations. This will be so if the companies do not get alternative sources of energy. Petroleum products are the ones that actually run industries. They are required in all industries, both processing and manufacturing.
Transport business and industry for instance will be affected a great deal by this new development. (Halbouty, 2003). This is because this industry relies more on petroleum products than any other things. The amount of fuel consumed by various means of transport in a day is actually immeasurable. Vehicles cannot move without fuel. Air transport that relies on kerosene and such light fuels for propulsion also face the challenge resulting from this development. This means that flights will have to be postponed. The net effect of postponement of flights is delay in the exportation of products to other places. Business deals will go soar and people will experience losses in the business. This is especially for those people who deal in perishable commodities such as horticultural products. People will also not be able to access the areas they had planned to access around the world for important business deals and meetings. Such people might give in business since the conditions surrounding them are so bitter and not close to offering an enabling environment. The railway network will also be affected by a shortage in oil since except for the electric trains, trains require oil for propulsion. Both private vehicles and public transport network will lead to problems. People might not be able to make it to work in time due to a lack of public transport facilities. This will affect performance in government institutions and private agencies. Reduced performance will affect the results of the companies, negatively bringing a toll on the overall national and international ranking of the company (Cordesman, 2006).
Pharmaceutical industries will also experience problems. These are the industries that manufacture pharmaceuticals. These industries provide a lasting solution to people’s health because it is through them that patients access medicines. The industries can simply not run without fuel. Most of them require heat for laboratory purposes when chemicals are being reacted. This heat is provided by electricity and fuels. Since electricity is too expensive for the expansive industries, most of them rely on fuel from petroleum products. The closure of these businesses will not work well for the world economy. There will be shortage of medicines in hospitals making patients to languish in pain. While it is the principle role of any government to ensure that its citizens get access to quality medical care, this might not be possible. On the other side employment will be unavailable for casuals who were working in the industries. They will have to be laid off due to closure of the industries. This again, will affect economies significantly, with a greater number of people moving in the streets looking for jobs and not being able to meet their needs.
Solvent manufacturing companies will also be affected a great deal. These industries manufacture and sell solvents. Such solvents include spirit, which is made by a large portion of petroleum products. The soap manufacturing companies might also be forced to shut down with the shortage of oil. This is because oil is an important ingredient in the manufacture of these soaps. The closure of solvent manufacturing industries will simply welcome the idea of expensive solvents into affected states. This will make citizen’s victims of price exploitation out of expensive solvents. The shortage of such solvents will further see greater effect n soap and detergent manufacturing industries which require them for business to proceed.
Saw milling and lumbering industries that produce timber, card boards etcetera will also be forced to shut down. The ban means that these states can no longer access oil from Iran (Yergin, 2008). This, therefore, implies that there shall be a shortage of oil and as such there will be a crisis. These companies rely on oil to run the machines that process the logs of wood. The treatment of timber for preservation so that it does not get spoilt is also done, using petroleum products. The lack of these petroleum products will impact that the timber cannot be processed and it may easily spoil. The products from remaining mills will be such expensive that any type of construction will be too expensive to afford for most students.
The agricultural sector will also be affected by shortage of oil. Agricultural production is the backbone of most economies. This is due to the fact that agricultural produce is used to feed the population. Abundant food production in a country enables every government to concentrate on development strategies since they do not spend a lot in feeding people. Agricultural production on the other hand relies heavily on the availability of fuel. Important machinery that pumps water into firms consumes fuel which is a petroleum product. The machinery cannot run without this. There will certainly be a drop in agricultural production. Governments will be forced to use the food in store to feed people at the expense of other projects. Food prices will escalate due to the shortage in food and this will be to the disadvantage of the common man. He or she might be forced to go to bed empty because they cannot afford a meal. Such will be a terrible economy.
The companies that manufacture plastics will find it rough with this development. The ban means that these states can no longer access oil from Iran. This, therefore, implies that there shall be a shortage of oil for the plastic manufacturers. These companies rely on petroleum products to function since petroleum is a raw material for the industries. Crude oil and natural gas are known to be reliable in the process of manufacturing durable plastics. Further, the plastic manufacturers will have to seek for alternative places to source for petroleum. This will consume a significant amount of time that would have been saved for the production process of plastics. Plastics form an important part of consumables that are required in the market. They are used for manufacture utensils and other forms of equipment to make life more comfortable. Such include basins. The companies will have to reduce their output due to a shortage in the petroleum. They might, as well, be forced to invest heavily in purchasing petroleum from alternative sources. This will increase their costs of operations, and thus, reduce the profits they normally attain significantly.
There shall be reduced exportation of products from the affected European Nations to other nations. This is because companies that export products rely on oil. Such include processing and manufacturing companies. It will, therefore, be a blow to the companies, which get a lot of money from exports. Foreign exchange will reduce significantly, owing to such shortage too. The countries will be spending more on importing oil from countries such as Libya and Nigeria in Africa. This will be extremely unfortunate, bearing in mind that these countries will charge higher for the oil due to increased demand.
There shall certainly be a problem with balance of payments for countries that were relying on oil from Iran. When a country exports more than it imports from other countries, it is known to be having a favorable imbalance in payments. When however it imports more than it exports, this is known as an unfavorable imbalance in payments. The latter is likely to happen in this case scenario. States will import more than they export owing to shortage of different goods and services. This will have to be sorted, using other mechanisms such as reserves or internal borrowing so as to contain the situation.
The development will also lead to huge spending by the governments of the European countries. There shall be greater spending in order to purchase oil from other countries so as meet the shortage. This, however, will be at very high cost due to increased demand. The governments will also spend in way of looking for alternative sources of energy. This will include geothermal power and hydroelectricity. This, however, will still not be enough to cater for the role that petroleum plays. The projects will take a significant amount of money from the government, which would have been put to other projects. They act as an opportunity cost for other projects.
There could be a problem in service industries. These industries rely on petroleum products to function. Such include hotels and restaurants, which offer meals to their customers. The meals are cooked with the main source of energy being petroleum products. The shortage may lead to the businesses being closed down. The industries may equivalently be unable to meet the demand for food by their customers. Food may also become expensive for the customers due to increased costs of operations of the hotels. This may cause problems to the people who rely on hotel food. Such service providers as petrol stations will also face challenges. They might as well not have enough oil to cater for the usual demand. The little oil present may sell at a very high cost, which poses a great challenge (Shaffer, 1983).
Banks and financial institutions will also have trouble during this period. The financial institutions provide loans to individuals and businesses, which they pay with a certain amount of interest in addition. Closure of business, therefore, will imply that the banks will have to suffer bad debts due to failure by the businesses to refund the amount they had received as loans. The banks will also have fewer businesses to lend loans to, which will further affect the income they receive annually in terms of interests (Utaybah, 1982). Banks will, therefore, have to retrench a lot of people who work for them due to a shortage of income. Most of the bank managers will argue that they cannot keep a large work force, which they cannot be able to pay. This will be a big blow to these retrenched employees and their families.
There is likely to be an economic recession due to shortage of oil. This is whereby the economy goes down significantly because various sectors of the economy underperforming. As it can be seen, the transport sector, food sector, service providers, and other sectors that bring about economic progress will face serious challenges. The economies may be such hard hit that the governments will find themselves taking debts to finance the shortages.
There is likely to be serious inflation in the European Countries that will be affected by the ban. Oil experiences price inelasticity. This means that a little shortage, which consequently results in less supply of oil in the countries affected, will most likely result to very high prices of oil. This will make almost all other commodities to become more expensive. Transport will also become expensive such that the public will find it hard to cope. Food prices will also escalate significantly. This will also be felt in the hotel industries and related industries. Inflation will reduce the consumer ability. This is might also lead to industrial strikes in the long run with people, seeking higher wages to finance their needs in the society. Majority of those who were relying on private cars to drive to work will be forced to use public means. This is because oil will be too expensive to afford.
The tourism industry will definitely be affected by the set of events. Tourists are important to any country since they bring foreign exchange to the country. The sector also provides employment opportunities to several people. The affect will be felt due to tourists shying away from visiting affected countries with the fear that they will be victims of high inflation. The tourists may opt for domestic tourism in their own countries or opt to visit states where they will not be victims of price injustices. This will deny the countries their source of reliable income through tourism.
Lack of oil will also affect the currencies of affected states. The strength of a currency depends on its demand in the world international trade. The US dollar which is a currency under high demand is one of the strongest in the world. A state having very little to export however is likely to have a very weak currency. Such will be the case with states that experience a shortage in oil and thus have less to export.
Heating in homes will be a big problem. The process of cooking initially is dependent on butane and Liquid Petroleum Gas. This will be a problem with a majority of homesteads relying on electricity for cooking. This will be an additional cost on their budgets, considering that the electricity bills will register higher figures. Electricity will also be very expensive due to a shortage of oil. This will make the demand for the electricity to be higher. Such families will
There could be a shortage of water in some homesteads. These homesteads rely on generators to pump water from a water source. This shortage will force some households to buy water, and some will have to walk long distances in search of water. Hospitals, schools and other institutions will face similar challenges. This is because they might not be able to operate as effectively as they would with the availability of oil. Most of these institutions require oil for cooking to perform their functions effectively and as such will find it hard to come to terms with the reality of lack of water and oil.
Because of the shortage of oil in the European countries, unemployment will be on the rise. There will be closure of various industries and businesses, which rely on oil for operation. They are many. Such include petrol stations. The poor business standing at this time will lead to certain workers being laid off to allow the companies to avoid high costs of operation. The backlog of unemployed people on the streets and looking for jobs will increase. This will further make the affected countries susceptible to higher levels of crime as people try to edge out a living.
The ban implies that there shall be a shortage of oil. Consequently, solvent manufacturing companies will also be affected a great deal. These industries manufacture and sell solvents. Such solvents include spirit, which is made by a large portion of petroleum products. The soap manufacturing companies might also be forced to shut down with the shortage of oil. This is because oil is an important ingredient in the manufacture of these soaps.
Saw milling and lumbering industries that produce timber, card boards etcetera will also be forced to shut down. The ban on exportation of oil by Iran to European states means that these states can no longer access oil from Iran (Yergin, 2008). This, therefore, implies that there shall be a shortage of oil and as such there will be a crisis. These companies rely on oil to run the machines that process the logs of wood. The treatment of timber for preservation so that it does not get spoilt is also done, using petroleum products. The lack of these petroleum products will impact that the timber cannot be processed and it may easily spoil.
As a result of the ban, there is likely to be a lot of sabotage on the current reserves of oil. People will be rushing to get access to the oil that has been kept in reserves. These people include sly business people who are agents of impunity and lovers of exploitation. They will hide oil in the affected countries so that they can benefit from increased prices. The opportunists will want to take advantage of further increases in prices of the oil. Those implicated will be taking advantage of other citizens.
The ban implies that there shall be a shortage of oil. Iran may as well have used this as a strategy to bring various states’ economies crawling. This is sensitive, considering that most of the sectors of an economy require oil to function. Lack of oil will bring problems to these sectors. The transport and communication sector will be hard hit. This will have to be reversed before anything goes to the worse. The countries may as well be forced to look for oil from other states. This will be of course at a higher cost. The soliciting may be done in African regions, which mean higher costs of importation. This, however, will be a breath taker for the African countries, which will make a catch out of the high cost, at which they will sell the petroleum. They could also be forced to seek alternative means of energy generation. The alternative here would be to turn to geothermal generation of electricity or hydroelectric power generation. The electric trains may as well be added to meet the demand for service public transport. Solar powered vehicles should be encouraged in such a case to counter the increasing shortage of oil in the countries.
|Monetary Policy||Susumi Ishii|