7 Global Consequences Of Soaring Oil Prices

http://www.businessinsider.com/consequences-soaring-oil-prices-2014-6


A member from the oil police force stands guard at Zubair oilfield in Basra, southeast of Baghdad June 18, 2014.

1. Growth in the euro zone, dragged down by France and Germany, is grinding to its slowest pace in six months, according to a June survey released Monday. About 5,000 companies across the currency area and in the manufacturing and services sectors reported higher input prices and specifically higher oil prices as “a key cause of rising costs,” according to survey compiler Markit. Apparently, oil prices are not yet high enough to weigh down manufacturing and service sectors in the U.S. and China, where Markit surveys found conditions are reviving despite fears of a slowdown.

2. India is dependent on oil imports for more than three-fourths of its needs, and about 13 percent of its imports come from Iraq. That means Asia’s third-largest economy, whose stock market has performed among the best in the world this year, could see an economic crisis unfold if oil prices don’t fall again. Since India subsidizes many fuels like diesel and kerosene, aiming to shield the poor from price fluctuations, the government must compensate losses to fuel retailers. Every dollar increase in the oil price raises the subsidy burden by about $997 million, an Indian oil official told the Wall Street Journal.

3. The price of gasoline in the U.S. is closely pegged to the international price of oil. In general, a $10 increase in the oil price will cause a 25 cent rise in gas prices. (This is known as the Hamilton-to-a-Quarter Rule, a $10 bill with Alexander Hamilton’s face to a quarter.) This rule only roughly estimates the national average price of gasoline, and prices always vary by region. For example, gas prices soared past $4 a gallon in California on Sunday, but are around $3.80 in Michigan.

4. Another handy rule: a 1 penny shift in U.S. gas prices generally leads to a $1 billion increase in American household energy consumption. If gas prices rise by a dime, that’s a $10 billion increase in household energy consumption. Analysts have said gas prices could rise 5 cents to 10 cents this summer if the turmoil in Iraq continues.



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