Compared to the 1970s, the world today is less dependent on petroleum. But, the Ukraine war has shown that oil still has the power to shake the world’s economy and politics. reached double digits. At that time, only half of the energy being used in the world was coming from oil. Now this figure has come down to about one third.
how much growth from a barrel of oil
Rich countries gave more importance to services. Factories are now more efficient and coal and gas are being used more in the production of electricity than oil. A study conducted by Columbia University last year showed that half a century of economic growth that required a barrel of oil can now be done in less than half a barrel.
Some analysts have even predicted in recent years that the world economy could surprise the oil industry at its rapid pace in the future. A few others pointed out how the economy would run using very little oil during the COVID-19 lockdown. However, when demand for oil returns in 2021 and the way oil prices have risen after the Ukraine war, it is clear that it will take several decades of efforts to free the global economy from oil.
huge investment needed
It is very difficult to reduce the demand for oil in a short period of time. This will require hundreds of trillions of dollars to replace the legacy of infrastructure. Such as vehicles and equipment.
“Investments are needed to reduce the link between economic activity and oil demand,” says Alan Gelder, vice president of Wood McKenzie, a chemical and oil markets consultancy. Oil prices have risen 50 per cent since the beginning of this year. When prices rose last year, central banks around the world consoled, saying it was all due to the stimulus package provided during the pandemic and was immediate. Now the latest rise in oil prices has shattered the expectation that the increased rate of inflation is immediate. In fact, it has made it very clear how deeply oil is deeply ingrained in the inner system of the global economy.
petrol pump displeasure
Americans are driving less and airlines are charging higher fares. Today, the reason behind the high price that common people have to pay for all the things all over the world is the effect on the supply or price of oil due to war. From petrochemicals required for plastics or fertilizers to the fuel used to transport goods to every corner of the world, or crude oil, has become very expensive.
Federal agencies in the US estimate that a $10 increase in oil per barrel reduces GDP growth by 0.1 percent and increases inflation by 0.2 percent. Similarly, according to the research of the European Central Bank, the effect of 10 percent increase in the price of oil in the Eurozone is seen in the increase in inflation by 0.1 to 0.2 points.
Undoubtedly, the biggest impact of this is seen on petrol pumps. Oil importing countries in Europe are offering fuel rebates and other concessions to drivers. Keep in mind that the anger of these people can boil up to the streets at any time. As seen by France during the Yellow Vest movement in 2018. Asia has the highest demand for oil in the world. There is also a need for rapid development here. Asia has also been greatly affected by rising oil prices. Japan and South Korea have increased subsidies to relieve high prices.
America, the world’s largest producer of oil, can deal with this situation a little better than others. Federal Reserve chief Jerome Powell pointed out on Monday that his country is certainly in a better position to withstand the shock of oil than it was in the 1970s. However, even after this, he could not stop him from giving his harshest message ever against the unaccountably rising inflation. He made it clear that the central bank could have acted “more aggressively” to prevent the burden of rising prices from falling on people.
expensive to get rid of
It took 50 years to bring down the share of oil in the world’s energy needs from 45 percent to 31 percent. In such a situation, the question remains how long will it take for countries trying to become a zero carbon economy to further reduce this share of oil. Moving to electric vehicles can greatly affect the demand for oil around the world. A quarter of the oil used in the world is spent on vehicles.
Severe Alvik, program director at energy advisory firm DNV, says: “The current oil price intensity will fall sharply. The demand for oil will peak in the next few years, then it will decline, while GDP is after that. Will continue to grow.” DNV expects that electric vehicles will reach 50 per cent in the next 10 years.