Rising Oil Prices Highlight The Fragility Of Globalized Markets And The Need To The Break The Over-reliance On Globalized Goods
Oil and gas prices are on the rise due to steady global demand and global supply concerns. It is a familiar story that has a major impact on the economies of all countries and the wallets of all consumers. Prior to this recent rise in oil prices, the reemergence of the US as the world’s top oil producer and a collapse of commodity prices had been helping to keep crude prices down, but relatively minor geopolitical shifts continually place upward pressure on crude prices. This time around, the driving force appears to be the Trump Administration’s sanctions on Iran and Venezuela as well as the Saudi, Russian-led effort to push up crude prices by capping OPAC and Russian oil production. In an economic environment where demand is ever-present and production can be suppressed, the inverse relationship between supply and demand dictates prices must go up whenever supply is strained. It is a fact of life that means the over-reliance on a globalized oil supply will favor higher and higher energy prices.
To blunt the rising cost of energy, which will eventually price more and more people out of the energy market and modern economy, the supply of energy must be diversified and/or the demand for available supply reduced. Under the policy agenda of the Trump Administration, natural gas and coal have continued to enjoy political support, but the push to develop and propagate alternative energies like solar and wind has been curved. Coupled with Trump’s efforts to weaken pollution and energy efficiency standards, this has made it less likely that the world’s population will be able to reduce its over-dependence on oil sooner than later. This has tilted the supply and demand equation in favor of higher prices. In addition to Trump’s sanctions against Iran and Venezuela, conflicts in oil-producing countries like Libya, which had provided a small boost to global supplies thanks to its return to the export market, have also contributed to upward pressure on crude. To boot, disruptions at refineries have helped push up gas prices as well.
What the global oil and broader energy market suffer from is fragility. Issues that are relatively minor to the International Community and the global economy, such as an uptick in civil unrest in oil producers like Libya, Iraq, and Venezuela, impact the cost of gas in oil producers like the US, because a globalized economy is fragile. The fact that every consumer in the world relies on the same globalized supply of oil means oil prices are impacted by geopolitical events across the globe. The way in which crude is globally priced creates a situation where any disruption in supply or a slight rise in demand can be used to justify increased crude and gas prices. With that in mind, attempts to diversify energy consumption away from foreign oil supplies suffer from a cyclic failure. When demand sharply declines and/or supply rises, the price of oil collapses, which means production must be shuttered. In accordance, the push to embrace alternative energy sources, which can alleviate global demand for oil, and increase domestic production only leads to a collapse in prices followed by a cyclic rise in prices.
Because global market forces continually push prices to unsustainable highs then collapse to undermine the build-up of the global energy infrastructure, the world’s population is trapped in a perpetual and degenerative cycle of over-dependence on oil. Embracing alternative energies and broadening demand for alternative carbon-based fuels will not be enough to break the cycle. The global reliance on a finite resource largely controlled by a handful of players needs to be broken. The need for oil will not, of course, disappear in the near future, but greater progress can be made on efforts to diversify the world’s energy portfolio while the globalized pricing of energy can be broken far sooner. The fragility of a globalized market makes it impossible for it to properly provide for the specializations needs of every local economy. Local and national economies need to participate in a global economy, but they must be stable, self-sustaining, and reliant on locally plentiful resources.
Local economies with easy access to oil and gas supplies should rely on cheap fossil fuels, but local economies lacking access to such energy sources are done a disservice when they are flooded with globally priced goods, i.e. the free flow of crude byproducts fosters dependence on them and inhibits the developed of more alternatives that are more locally produced. Just as the Trump Administration is attempting to reign in the likes of Iran and Venezuela with sanctions at the expense of higher oil prices, he is also attempting to orchestrate a trade war. His expressed goal of his “America First” policy agenda is to strengthen the US economy. The only way for Trump to accomplish his ultimate goal is to reverse the over-globalization of the US economy, which means he must recalibrate trade deals away from free trade. In the case of the oil markets, Trump and other world leaders must find ways to compartmentalize the pricing of commodities like oil.
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