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You are here: Home > Educators > Economics > International Economics > External Shocks to the Global Economy: Oil Prices - Activity |
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External Shocks to the Global Economy: Oil Prices - ActivityOne of author's earliest memories of how fascinating economics could be was back in the early 1970s when, as a result of the war between the Arabs and the Israelis, the oil crisis hit much of Western Europe. Arab oil producers reacted to the West's support of the Israelis by cutting oil supplies to the West. This was before North Sea oil and the result was a massive rise in the price of oil, widespread economic hardship and inflation in the UK at 25%. Living through this period was interesting and memorable. In recent months, the oil price has once again reached record levels. At the time of writing, the price of a barrel of Brent Crude hovers between $55 and $60 per barrel. One year ago, the price was nearer $32 a barrel. Oil prices per barrel in US dollars, 1970-2005
Data source: Energy Information Administration Such a dramatic change in price of this vital commodity is something that firms and governments have little control over. As such they are referred to as 'external shocks'. Any external shock will have some impact on firms and the overall performance of an economy - but to a greater or lesser extent depending on the severity of the shock. Back in 1974, the shock was significant. The government in the UK faced a decline in the economy, unemployment rose, inflation did as well - this was not, according to economic theory, supposed to happen. Stagflation became a new term in economics - rising inflation accompanied by a decline in economic activity. Today, oil is as important in many ways as it was back in the '70s. Demand for oil globally is rising at an ever faster rate as newly developed countries like China and India use large quantities of oil in their burgeoning manufacturing industries. Supplies and capacity (the ability to refine oil into the constituent parts needed for its different uses) are not growing at the same rate. Throw in world uncertainty over terrorism and the political problems in the oil rich Middle East and the picture for the market for oil looks to be heading for nothing more than further price increases. The question is, will the shock of a doubling of oil prices in the last year have the same impact as that which occurred during the 1970s? The aim of this Activity is to help you to build your evaluation skills. You will be expected to construct an argument on the shock to the world economy of the oil price rise over the last year. However, what you will have to do is to argue with yourself! TaskYou will be writing a play based around a dialogue between yourself and an imaginary opponent. Imagine that you are taking part in a televised debate on the following topic: The rise in the oil price presents a significant threat to the economic stability of the global economy.You will have to think of the arguments and find the evidence that supports this viewpoint but at the same time, try to think of the arguments that your imaginary opponent will put and the evidence they will use. The dialogue need not be very long - perhaps taking up five minutes in total - the important thing here is to ensure that you think about the opposing views. Some clues are given below to help get you going. Arguments for:
Arguments against:
The following sites might prove helpful in developing your arguments:
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