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The Ripple Effects of the price of Oil

An analysis of the ripple effects of cheap oil

The [1974] oil shock altered power relations between the world’s main geopolitical players and created new ones. Higher oil prices had many unexpected consequences—from breeding oil wars to fueling the international spread of Islamic fundamentalism thanks to funding from newly super-rich countries like Saudi Arabia. Today’s drop in crude-oil prices, which began in the summer of 2014, may be as disruptive as the quadrupling of oil prices that created the oil shock of 1974.

It’s amazing how much of an impact the price of oil has on the geopolitical and financial landscape – and it would be fascinating to see the development of oil alternatives shake out into an entirely new landscape. Underlying all that is a fundamental factor that plays into the climate change discussion as well – it’s all about energy, and humans need it increasingly so to maintain the modern living standards we’ve become so used to in the developed world.

This goes without examining the more micro-level changes – with low oil prices, will airfares drop? Will people suddenly take more holidays in further off destinations? Will people resume buying high fuel consumption cars, too late for car companies like Ford & Holden to reverse their courses? How does that change cultural consciousness around energy use? All those things changed because the nominal price for something so fundamental to our lifestyle changes one way or another; is the price oil a proxy for all manner of things?

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