Theoverall consumption of crude oil will have to be reducedShaleoil production will increaseItwill have to import Oil from Middle EastWhatcan the U.S. do? · US may face threat of bombingby Iran· Airbus may also facedifficulties with its sales to Iran· Boeing’s deal to sell planesto Iran could go for a tossUS dollar will depreciate as a result of the high price ofoil and thus all other currencies will appreciate so there will be inflationall over the world like 2008 all over again. Other probable effects are:-Effects on US: China’s excessive GDP growth adds a premium to the price of oil whichincreases over time.
The externality costs are increasingly higher as Chinacontinuously grows at a fast pace. The results have policy implications in terms ofthe sustainability of the Chinese faster growth.Effectson China:-Clearlythere will be a higher current account deficit as India imports 80% of its oil.
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Higher input costs in various industries will lead to higher overall inflationand hence lower profitability for several industries. All these factors willlead to a depreciating INR. As a result, the stock markets will fall and ingeneral slow down the investment cycle. This will lead to a slow productivity growthin India and slowing GDP.Effect of High Oil price on India: Also, in macro-economics,high oil prices can shift up the supply curve for the goods and services forwhich oil is an input. For example, supply of cars will reduce and peoplewill have to heavily depend on pooling.
Giant oil prices also can reduce the demandfor those other goods because they reduce wealth as well as induce uncertaintyabout the future.In April, President Trump, will refuseto certify Iran’s compliance of terms and oil prices will rise up to 80 perbarrel (Current Oil Price is 64.67 USD a barrel). How increase in the oilprice would affect households and businesses is at the micro level. Butconsidering the general environment, oil price increases generally increaseinflation and reduce economic growth.
Interms of inflation, oil prices directly affect the prices of goods in theindustry which is directly dependent on petroleum as the main raw material,indirectly affecting costs such as transportation, manufacturing, and heating.Mainly, the Airlines and other transport will suffer along with the automobilesindustry. The rise in these costs can adversely affect the prices of a widerange of goods and services, as producers will pass production costs over toconsumers. Basically there will be a period of stagflation. Hence itis no surprise that changes in oil prices are viewed as an important source ofeconomic fluctuations.
PresidentTrump has recently signalled that he may not be certifying that Iran iscomplying with the terms.TheJoint Comprehensive Plan of Action also known as the Iran nuclear Deal is apreliminary framework agreement reached in 2015 between the Islamic Republic ofIran and—the United States, the United Kingdom, Russia, France, China andGermany and the European Union. Rollnumber- CMM043Name-Pranu HansTopic-AEconomicsIndividual Assignment