Global Energy Crisis & Its Economic Impact

Introduction

Due to the Middle East conflict,
there is a shortage of Crude Oil and Natural Gas.

This has caused a major shock to the global economy.

Key Concepts

Crude Oil
It is the primary source of energy for the global economy
Essential for transportation, industry, and fertilizer production

Strait of Hormuz
A key route for global oil and fertilizer exports
About 1/3 of global fertilizer exports pass through this route

Causes

Geopolitical tensions in the Middle East (Iran vs USA)
Disruption in oil supply
Transportation barriers
High dependence on energy
Global supply chain disruption

Global Impact

Energy Saving Measures
South Korea – Water usage restrictions
Thailand – Reduced air conditioner usage
Philippines – Lift usage restrictions
Sri Lanka – Additional weekly holiday

This is an example of Energy Crisis Management

Agricultural Impact
Increase in fertilizer prices
Reduction in wheat cultivation
Rise in food prices

Industrial & Business Impact
Increase in petrochemical prices
Export disruptions
Reduction in air transport

Sugar Market Shift
Brazil – Shift from sugar to biofuel production
Supply decreases → Prices increase

Pharmaceutical Impact
Transit hubs shutdown
Delay/damage in medicines
Risk of health crisis

Impact on the USA

Increase in Inflation
Rise in interest rates
Higher housing loan costs

India’s Position

Strengths
Approximately 50 days of oil reserves
Good relations with Iran

Weakness
India is highly dependent on imports

Impact on India

If oil price increases by one dollar:

Fiscal Deficit increases
Current Account Deficit increases
Rupee value decreases
Urea prices increase
Transportation cost increases
Inflation increases

This is called Cost-push Inflation

Concept Link

This topic is related to:
Macroeconomics
Inflation
International Trade
Energy Economics

Current Relevance

In the era of Globalization,
a problem in one region → affects the entire world

Energy Security is important
Need for Renewable Energy is increasing

Exam Notes

Oil Shock
Supply Chain Disruption
Cost-push Inflation
Energy Crisis
Current Account Deficit

Summary

Due to the Middle East conflict,
there is a shortage of oil and natural gas.

This has affected the global economy,
causing price rise and reduced production,
and changes in lifestyle.

India is also affected,
but is managing the situation to some extent.