High Oil Prices Hurting Growth in Developing Countries
Oil is a highly useful energy resource today as it is a major source of energy to developed countries as well as developing countries all over the world. Petroleum and natural gas is found in large reserves in a few countries across the world and these countries are known as oil producing and oil exporting countries. As industrialization and growth is often fueled by this energy resource, it is a valuable commodity that is sold by oil exporting countries in the international market. Price of petroleum is formulated based on numerous factors like demand, supply and regional factors like political tensions, conflicts, regional tensions, natural disasters and other such factors. In the last decade or so the oil prices saw a steep rise till the global financial crisis of 2008. After this crisis the world economy is in a recovery stage and oil prices are currently above 100$ a barrel which is still very high. International oil prices are formulated using the United States currency which is the U.S Dollar.
High Prices of Oil Hurting Developing Economies:
Many developing countries all over the world are not oil producing or oil exporting countries. They import a large percentage of their oil needs and some of these countries import more than 90% of their oil consumption needs from oil exporting countries. As the price of oil in the international market is very high these countries are stuck with a huge import bill every year. This results in a balance of trade deficit where their import bill exceeds their export income with a large margin.
Oil is used in industry for vehicular transport, as fuel for cooking, for electricity and for various other uses in an economy. The countries infrastructural growth and progress of the people largely depends on the energy resources, oil being one of the main energy resources in this mix. Many times governments and oil companies in these countries are subsidizing these oil resources that are used for public consumption like vehicular transport and daily uses of this energy source. Government can only subsidize to some extent and after which the costs of importing oil has to be incurred by the common man. So both governments and common citizens of developing countries that import oil at a large scale have to bear the expenses of importing oil. This effects the growth of developing countries that are so heavily dependent on import of oil from oil exporting countries. As prices of oil are very high it is directly hurting growth in developing countries that import oil all over the world.