“Oil Politics is World Politics”, said someone near me while I was on a bus, travelling. The return journey had to be by train and obvious choice was to buy a newspaper to pass time. I did. Being much involved into economics and business after skimming through the headlines I turned back to the Business page. It read,”Crude oil prices hit all time high, Indian economy set to suffer a big blow”. Everything suddenly struck chord.
As a Chemical Engineering graduate I knew a bit of economics behind crude oil dictating the world economics. Let me try to explain it in layman terms.
The picture below is the ever humble demand-supply curve. The blue curve tells you that when the demand for quantity for a product decreases, the price of the product increases. The green curve tells you that when the quantity of supply of the product increases, the price of the product increases.
How are these curves related to crude oil price?
After an oil rig(Oil rigs drill into earth and extract crude oil) is build, the cost of production of crude remains the same whether the rig is operated at 100% of its capacity or 60% of that. When the demand for quantity of crude oil is low the producers of crude oil are forced to operate the rigs at a lower capacity but since the operating costs remain the same they are required to increase the price of crude oil produce to cover up the costs. Also when prices shoot up due to low demand for quantity, the producers are forced to supply(or produce) more oil to cover up the costs. Thus increasing the oil price. Demand and Supply dictate crude oil prices
What does increase in oil price do?
It does a lot. A rise in oil price means that the nations spending money into importing oil are forced to spend more money increasing the price of the end products such as petrol and diesel. What happens when the cost of petrol and diesel increase? the cost of any form of transportation increases. Logistics sector gets hit. Cost of bringing that 1 kg of tomato to a market near you increases thus the cost of tomato increases (However oil prices are not the only factor with which tomato prices are fixed). You know what happens when the cost of a kg of tomato shoots up. Bonkers! Bonkers! everywhere. Tomato is just one such example.
Crude oil is set to rule everything around you for many more years to come. Something that is similar to crude oil and currently one of the kingpins is Nuclear Energy. Dividing Nuclear Energy into two, Weapons and Electricity. Electricity from Nuclear Energy has been one of the most efficient ones to have been discovered. A major quantity of energy that India produces is from Nuclear plants. And almost similar to it is Nuclear weapons. Nuclear Weaponry has been a back bone of National Supremacy. World nations conduct nuclear tests and show the world their supremacy. Indigenous nuclear weapons and nuclear weapon launchers are built and tested to alert the other nations. These tests protect a nation from being attacked by another with the fear of being counter-attacked. Thus dictating the world.
While Crude oil economically dictates, nuclear energy strategically dictates the world. Both of them combined are current rulers of the world.