At the start of the Industrial Revolution, the oil commodity has taken a significant part in the economy of the United States. The supply and demand, as well as the price of oil, have a huge impact in many areas such as economic growth and inflation. As oil prices make a direct impact on Global Oil Market (not just in the United States), many investors around the world are also looking into investments in Asia such as investments with WOT ASIA. The question, however, is how oil prices directly affect the world’s democratic leader.

With America’s growing population and energy intensified mechanized economy, the United States has quickly become among the largest users and producers of oil throughout the world. By 1970, 80.5 million cars and 17.6 million trucks were put operating in the United States. In the same year, the United States generated 9.6 million barrels of oil each day approximately 21% of the total worldwide.

However, in the 1930’s the Middle East showed sizeable quantities of oil that the Organization of Petroleum Exporting Countries (OPEC) rapidly replaced the United States as the world ‘s leading oil producer. In 1970, OPEC members produced 23.3 million barrels a day, accounting for 51% of the world’s total.

The Impact Of Exporting Oil From The Middle East To The U.S. Economy

In 1970, world oil production reached a level and there was pressure on the price of oil in the United States with the increasing consumption and demand for oil. In 1973, things were getting worse, supply shortages, rising prices, gas station long lines and gasoline rations.

In October of that year, in order to protest the U.S. support for Israel’s Yom Kippur War, the Organization of Petroleum Exporting Countries imposed an embargo on sales of oil to the United States. The embargo persisted only a few months but the oil prices throughout the world subsequently quadrupled. This contributed to the stagnation of economic growth and rising inflation in the economy of the U.S.

The 1973-1974 oil crisis exposed for the first time the U.S. susceptibility to changes in oil supply and demand, and foreign politics as well as economic causes influencing the price of oil. A number of problems since that time, like the Iranian revolution, the Persian Gulf, and Iraq Wars likewise triggered surges in oil rates and have persisted to show that weakness.

As the years went on and the United States produced 13% of the world output in oil, the growing use of oil in large markets have likewise emerged thus also making an impact to the U.S. economy. Thankfully for consumers, the oil price has not grown steadily upwards. Fuel conservation, efficiency actions, new oil discoveries overseas, as well as the shale oil wave, have led to strengthening supply and have offset the effect of growing oil usage.

Changes in Oil Price – Channels Affected

The transfer of oil prices to the US economic sectors can be direct and indirect. 30% of costs in the agricultural sector are associated with energy inputs which directly impacts the price of food.

Oil prices also affect the transportation expenses of the commercial and industrial sector and directly affect the prices of other goods and raw materials like metals. It further affects travel by increasing the fuel costs of the aerospace and land transportation sectors.

There is likewise a solid relationship between the price of oil and the price of other areas in the economic sector. Crude oil prices have pushed inflation-adjusted bond yields and key inflation signals. On the other hand, in the years after the 70’s oil crisis, oil-driven inflation has been weakened by more flexible supply and demand circumstances, and it seems to be more affected by the business cycle economy.