Oil Price Impact

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Impact of oil prices on world economy

1. Increased financial indebtedness of oil importing nations due to constant rise in oil prices

Oil importing countries budget primarily comprise of oil cost which increases the indebtedness of these countries towards oil producing nations. The prolonged indebtedness may give rise to insolvency of these counties in long term.

2.Increase in oil price has a direct impact on both micro- and macro economics of oil importing countries. Oil price increases are generally linked to increase in inflation and reduce economic growth.
Increase in oil prices increases the cost of supply chain. This causes the inward shift in aggregate supply curve and hence the price level goes up. The fluctuations in oil price leads to speculation in the market. This is also a major reason for short term price rise of the commodities in a country.
Apart from the direct impact, the indirect impact could be the price rise of commodities which use oil as their input in some form or other.
Increasing oil prices in oil consuming nations reduces the purchasing power an...

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