Effect of Crude Oil Prices by anamaulida

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        <p><strong>Crude price rise may hamper global
recovery</strong></p>
<p>With global crude oil prices hitting the roof, the International
Monetary Fund (IMF) has warned that rising prices of scarce natural
resource could aggravate poverty. Just as the U.S. and global economies
are finally strengthening, they face a new danger: Rocketing oil prices,
which topped USD120 a barrel. The global economy may face another serious
crisis if oil prices keep increasing because of unrest in the Middle East
and North Africa. The unrest that has swept from Tunisia to Yemen,
Algeria, Bahrain and Iran is fanning the advance of oil prices. Libya's
escalating violence represents the biggest threat to global oil supplies
since the invasion of Iraq eight years ago as political unrest sweeping
the Middle East centers on a member of the Organization of Petroleum
Exporting Countries, or OPEC. Oil prices jumped to the highest in more
than two years as Libya's violent uprising threatened to disrupt exports
from Africa's third-biggest supplier and spread to other crude-producing
nations in the Middle East.</p>
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<p><strong>Impact on Indian economy</strong></p>
<p>India's crude oil import bill may cross USD100 billion if the global
price stays firm at USD 100-USD 120 a barrel. If that happens, it will
upset the delicate fiscal balance, expand deficit, increase the subsidy
bill that continues to bloat year after year and fuel inÂ-flationary
expectations. Rising crude oil prices will impact inflation whether the
government absorbs the burden or passes it to the consumer by increasing
prices of petroleum products. If the government acts as a buffer, the oil
subsidy bill will rise and affect fiscal deficit. This will indirectly
fan inflation. India's oil import bill in the first 11 months of 2010-11
was USD 85 billion. For the whole year, it is reported to have reached
USD 90 billion. India, which imports nearly 80 percent of its crude oil
reÂ-quirement, spent USD 79.55 billion in 2009-10.</p>
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<p>The recent strengthening of crude oil prices could impact economic
growth momentum in the country for the current fiscal. The main factors
that would be responsible for economic growth moderation in 2011-12 would
be crude oil prices and RBI's tightening of monetary policy in response
to oil prices. Rising crude price will lead higher inflation and higher
inflation attracts monetary tightening. Monetary tightening would lead to
a squeeze on aggregate demand, impacting economic growth.</p>
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<p><strong>Impact on world economy</strong></p>
<p>It is estimated that over a year, USD 100 oil would reduce U.S.
economic growth by 0.2 or 0.3 of a percentage point. So rather than grow
an estimated 3.7 percent this year, the economy would expand 3.4 percent
or 3.5 percent. That would likely mean less hiring and higher
unemployment. The global economy wouldn't be affected as much. In part,
that's because emerging economies consume less oil, per person, than
industrialized countries do. In addition, many developing countries
regulate or subsidize the cost of gas. Global growth would slip about 0.1
percentage points, economists estimate. But rising oil prices could
threaten European economies, many of which are net importers of oil and
gas, haven't fully recovered from the financial crisis and face heavy
debt loads. Spain and Italy, where gas at the pump already goes for about
USD 8 a gallon, face years of a slow, grinding recovery. A spike in oil
would deal their economies another setback.</p>
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<p>Rising oil price would also push up inflation in Europe, where it
already exceeds official targets, and in countries with surging food
prices, like China, Brazil and India. Those countries might then have to
raise interest rates to cool inflation. Doing so, in turn, would slow
growth in Latin America and Asia.</p>        <!--INFOLINKS_OFF-->
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