Oil Price Case Study

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Introduction
Background of Study:

Oil price affects the countries around the world differently. In general, low prices are considered good for importers of oil because it not only improves consumer spending but also improves the trade balance of a country. Therefore an increase in oil prices has a significant negative impact on the GDP growth in all oil importing countries. On the other side decrease in Oil Price is bad for oil exporters as it could put a depression in revenues of oil exporting countries where oil exports play an enormously important role in supporting economic growth and government finances. Moshiri &Banihashem (2012) concluded that, many oil-exporting countries are heavily dependent on exports from oil revenues, so when oil prices are low, their economies suffer, and when oil prices are high, their economic activities boom.
The recent drop in the prices of crude oil has drawn everyone’s attention towards the crucial role that oil plays in the economy …show more content…

A steep fall in the current accounts leads to further worsening of the treasury budgets, which in turn, will further worsen the balance between savings and investments. When a country has a fixed nominal exchange rate and there is also an output gap, increases in oil prices leads to an increase in the general price levels. According to a RBI report (2005), for every unit dollar increase in crude oil price, WPI inflation rises by 30 basis points. Kaushik Bhattacharya et al. (2005) analyzed the impact of increase in oil price on inflation. They studied the mechanism of increase in the prices of petroleum products on the prices of other commodities and the output in India. In February 2017, from an all-time low of 35 U.S Dollars per barrel, it increased to 65 dollars in the first week of December 2017. Due to this, all oil importing countries faced the threat of oil shock; India being a major oil importer was particularly

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