CONTENTS European Economic Growth. 9 IX.Collapse of The Golden

CONTENTS
 
I. Introduction. 3
II.Oil Price
Shocks. 3
III.The First Oil
Shock, 1973 – 74. 5
IV.The Second Oil
Shock, 1979 – 80. 6
V.Organization of
Petroleum Exporting Countries (OPEC) 7
VI.Organizational
Structure of OPEC. 8
VII.Effects of Oil
Price Fluctuations on Economic Growth. 8
VIII.The Golden
Age of European Economic Growth. 9
IX.Collapse of The Golden Age. 10
X.Conclusion…………………………….. 10
XI.References……………………  11
 

                         

 

 

 

 

 

 

        
I.           
Introduction

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      Unrefined
oil is one of the most important commodity products in today’s industrialized
economy, since it is a very important energy source for many countries. Oil is
an important commodity that affects world economies due to its strategic
nature. Fluctuations in world oil prices are affecting the current government
revenues. Developments in oil prices, in addition to price movements and
economic growth on the earth, add to the impact on the total as well as labor
market issues.

      Since the
1970s, when he saw his first major movements at world oil prices, the price was
subject to price fluctuations, thus triggering the link between oil prices and
economic growth. At that time, the United States was the dominant economy,
which inevitably led the world to examine the relationship between
macroeconomists and changes in oil prices. Meanwhile, the empirical literature
began to expand its horizons and economists began exploring how oil price
movements affected economic growth in other importer countries. Since then,
there has been a large literature exploring the relationship between oil prices
and GDP. The majority focuses on the Organization for Economic Co-operation and
Development (OECD). The relatively small number of these studies is valid for
oil exporting and developing countries. Moreover, the current literature on
petroleum exporting countries generally only focuses on the economics of a
single country or a few countries. There is no literature reviewing the groups
of countries exporting to examine their possible inconsistencies.

 

      II.           
Oil
Price Shocks

      There are some concept which associated with
the study. The five important issue related to study include oil price shocks,
inflation rate, GDP growth, exchange rate and investment rate. Each of these is
detailed as fallow.1 GDP growth, the measure of economic growth. The amount
of goods and services produced over time in an economy is called the output /
economic growth of that country.2 Inflation, a constant rise in the general price level
of goods (goods and services) over time in an economy is called inflation.3 Investment, Radcliffe has described investments as
the production of newly produced physical things such as houses, machinery,
factories and stocks of goods.4 Exchange rate, the price of one currency for the
purpose of conversion to another one is called exchange rate.5 Oil shocks simply
reflect fluctuations in global crude oil prices as a supply or demand response
on the market. 6 At the begining, international oil companies were the
determinants of oil prices before the 1970s, and the Organization of Petroleum Exporting
Countries (OPEC) has begun to change the price of oil by identifying supply
quotas. However, towards the end of the 1980s world oil prices are always
determined by a market-related pricing system that relates oil prices to the
market price of reference crude oil.7

    Supply and
demand equilibrium are the main forces determining the price of petrol in the
international oil market; each of those market forces is influenced by many
drivers. By the time, petroleum demand derives from economic growth rates and
productivity gains in the broader regions of the world, or from
energy-efficient technology or new innovations such as new for oil. However,
such structural determinants tend not to change rapidly and for this reason, it
is unlikely that they will form the basis of an oil price shock on their own.
In addition, China’s extraordinary economic growth has significantly affected
the world’s oil demand. On the contrary, weak demand after the financial crisis
in Asia in 1997 may cause short-term difficulties in global oil prices.

    Countries
that are not OPEC and OPEC members are suppliers to the crude oil market;
output normally depends on political and sometimes economic factors.8 At long last, oil supply is usually determined by the
level of extraction, reserve, depleted and efficient oil extraction that leads
to new oil finds and improved oil recovery at the same time. Short changes in
OPEC production quotas due to technical failures or political reasons, such as
Iraq’s oil-rich lands and Niger deltas, war and militancy, and international
sanctions for oil, are temporary obstacles to supply. They are of great
importance for the pandemic. This also affects oil prices.

 

   III.           
The
First Oil Shock, 1973 – 74

    The oil
crisis which started 1973 or the first oil dispute that began on October 15,
1973 was originate from the Arab-Israeli war, which embargoed oil exports to
the Arab oil producing countries, particularly to the US and the Netherlands.
The Netherlands provided arms to Israel and allowed the Americans to use Dutch
airports to procure and support Israel. Since the United States, the
Netherlands and some other countries perceive Israel as a powerful ally, they
have declared an oil embargo on Western countries to force Arab lands to leave.
This comes at a time when OPEC’s production is beginning to affect the global
oil market by reducing volume and unilaterally increasing prices. The price of
oil rose from $ 3 per barrel to about $ 11.65 per barrel in 1974 on a global
scale. This has caused serious consequences for many developed countries,
including high inflation, which led to serious price hikes and thus stagnation.9

 

   IV.           
The
Second Oil Shock, 1979 – 80

    The second
oil crisis or the oil crisis of 1979 derived from intense protests following
the Iranian revolution, destroyed Iran’s oil sector. While the new system
continued oil exports but was less Saudi Arabia and other countries in OPEC
were able to compensate for the fall increased production, the overall loss in
production was almost 4%. Also, widespread panic, the price being under normal
conditions, resulted in much more payment than expected. In the United States,
price controls on domestic oil resources also exacerbated 8 cases. After Iraq’s
invasion of Iran in 1980, oil production in Iran nearly stopped, and oil
production in Iraq showed a sharp decline. After the 1980, oil prices fell by
six percent and fell 46 percent from the price in 1986 due to demand and
excessive production decline. The second oil smell originated in the 1978/79
Revolution in Iran and then in the Iraq and Iran wars of the 1980s, when Iran’s
oil exports almost stopped. As with those living in oil shocks in the past, the
magnitude of the price increase was largely due to panic and agglomeration; At
present, OPEC’s role in the price increase is not important. This shock leads
to another round of global inflation and the central bank of many countries,
such as the US Central Bank, is sharply raising interest rates.10 The price increases after the end of oil price shocks
are clearly seen in the below chart. This affects the whole world including
Europe.

 

              

       Sources: OPEC, IEA statista
2017.

 

      V.           
Organization
of Petroleum Exporting Countries (OPEC)

    Considered
among the leading oil exporting countries in the world, it is a global
organization dependent on oil exports to fourteen countries to earn revenues.
In this organization of Member States there are 43% of world oil production and
81% of world oil reserves. Established in Baghdad in 1960, the Saudi Arabia,
based in Vienna, was founded by Iran, Iraq, Kuwait and Venezuela. And today it
is also made up of nine other Algeria, Angola, United Arab Emirates, Ecuador,
Nigeria, Indonesia, Libya, Qatar, Venezuela and Gabon.11 OPEC said 60% of the world’s oil exports come from
OPEC member countries. This important market share requires that they can
influence the direction of international crude oil prices through the policies
they set out.12  OPEC is
considered as an oil cartel, although the primary objective is to create a more
stable oil market for both consumers and producers. This is done by trying to
prevent price fluctuations in the market by controlling a significant portion
of total crude oil supply.13

 

   VI.           
Organizational
Structure of OPEC

    It is very important that the cartel
consists of a group of countries connected to each other in order to establish
stability and achieve common goals. The ability of OPEC to influence prices is
as strong as the desire of each member to compete with the targeted production.
For this reason, countries that wish to become members of the hierarchy can
only do so if the petroleum is thought to be a significant net-exporter, while
other members are considered to have similar interests and developing
countries. In addition to the acceptance of all constituent nations, there
should be a majority vote of four-thirds of the members.14

VII.           
Effects
of Oil Price Fluctuations on Economic Growth

    A large group of researchers points out
that fluctuations in oil prices have important consequences for economic
activity. These results are expected to be different in oil imports and in oil
exporting countries. The increase in oil prices is expected to be
counterproductive, as oil prices fall, although good news in oil exporting
countries and bad news in oil importer countries are needed. Transmission
mechanisms that are the real economic activity effect of oil prices include
supply and demand channels. Supply side effects depend on the fact that crude
oil is a fundamental input for production, and therefore an increase in oil
prices leads to an increase in production costs, which causes firms to reduce
production. Changes in oil prices also bring about side effects on
demand-consumption and investment. Consumption is indirectly affected by the
positive relationship with disposable income. The magnitude of this effect is
so strong if it is perceived that the shock is longevity. In addition, oil prices
have a negative impact on investment by increasing the costs of firms. It
should be noted that the changes in oil prices have indirect effects on the
real activity by affecting the foreign exchange markets and inflation.15

 

VIII.           
The
Golden Age of European Economic Growth

    The period from
1950 to 1973 is accept as the golden age of European economic growth and for
most Western European countries, the real GDP growth per capita exceeds 4 per
cent per annum. In this period, the countries with the lowest income levels
appear to be the fastest growing countries. However, there are many reasons for
the rapid growth in the Golden Age. These include the transfer of
non-agricultural workers and post-war restructuring, which has had a strong
impact especially during the 1950s and 1960s. During the Bretton Woods period
there was a relatively benign macroeconomic environment free from the adverse
effects of world wars and intermediate war depression and protectionism. And
such conditions created an unique investment increase.16 This growth and economic development environment
continued until the destruction of oil price increases.

  
IX.           
Collapse of The Golden Age

        In the early 1970s, European economic growth
began to slow down and European territories began to lose power. Besides its
many reasons, the impact of oil price shocks is also great. The fact that the
OPEC countries decided to increase their oil prices due to the reasons
mentioned above, and the consequence that the economy of the energy outsourcing
countries was severely damaged affected the Europe. In this respect, there is a
preliminary relationship between oil price shocks and the end of the golden age
of European economy. This can be explained as follows; the fall in petroleum
supply has reduced the total supply, which has led to a decrease in total
output with inflation. which led to the loss of validity in some of the
accepted economic theories until that time. Inflation and unemployment all
appear together, which has shaken many economies and has harmed the European
economy as well.

     
X.           
Conclusion

This study examines the causes of oil price shocks and how
those shocks effect economic growth. Oil price increases have negative effects
on the world economy. But this situation needs to be evaluated in two ways.
When we look at the countries exporting oil, it is seen that the increase in
oil prices affects the economies positively, but it negatively affects the
economic growth of oil importing countries. It is understood that the european
economy is affected negatively after the first oil shock. because it is a piece
of land that does not have oil resources and exports it. Oil price increases
are in many directions as well as have negative consequences on economic
growth.

 

  
XI.           
References
 

·        
Crafts, Nicholas,(2003), “Fifty Years Of Economic Growth In
Western Europe: No Longer Catching Up But Falling Behind?”, Stanford
Institute for Economic Policy Research
·        
Dunsby,
A., Eckstein, J., Gaspar, J. and Mulholland S., 2008, “Commodity Investing: Maximizing Returns through Fundamental
Analysis”, New Jersey: John Wiley & Sons, Inc.
·        
Farrell,
G. N, Kahn, B. and Visser, F J. (2001), “Price
Determination in International Oil Markets: Developments and Prospects”
South African Reserve Bank Quarterly Bulletin, No. 219.
·        
Greene, W. H. (2012), “Econometrics Analysis”, 7th ed., Pearson Education, Inc,
NJ.
·        
Hamilton, J. D. (1983). “Oil and the Macroeconomy since World War II” The Journal of
Political Economy, Vol. 91, No. 2.
·        
Jime´nez-Rodr?´gueza,
Rebeca and Sa´nchez, Marcelo , (2006), “Oil
price shocks and real GDP growth: empirical evidence for some OECD
countries”, Applied Economics.
·        
Kaufmann,
R. K., Dées, S., Karadeloglou, P. and Sánchez, M. (2004), “Does OPEC matter? An Econometric Analysis of Oil
Prices”. The Energy Journal. 25(4).
·        
Llie,
L. (2006).”Economic considerations
regarding the first oil shocks, 1973 to 1974″, Lucian Blaga University
of Sibiu.
·        
Monesa,
Laila Taskeen Qazi, “The Effects
of Oil Price Shocks on Economic Growth of Oil Exporting Countries: A Case of
Six OPEC Economies”
 
·        
OPECAnnualStatisticalBulletin,2016,https://www.opec.org/opec_web/static_files_project/media/downloads/publications/ASB2016.pdf
(19.01.2018)
·        
Organization
of Petroleum Exporting Countries (OPEC) http://www.opec.org/opec_web/en/about_us/25.htm  (17.01.2018)
·        
Radcliffe,
R. C. (1996), “Investment:
concepts, analysis, strategy”, London: Harper Collins,
·        
Suleiman,
M (2013). “Oil Prices, Oil Demand,
Economic Growth and the Resource Curs”, Surrey Energy Economics
Centre (SEEC).
·        
Tauline,
M.J., (2008), “Exchange Rates:
Dynamics, Expectations and Adjustment.” New York: Nova Science Pub
Incorporated.
·        
Weil,
D. N., 2009, “Economic
Growth”, New Jersey: Pearson Education Inc., Curwen, P. J., Inflation.
California: Macmillan Press
 
 

 

 

1 Monesa, Laila Taskeen Qazi, The Effects of Oil Price
Shocks on Economic Growth of Oil Exporting Countries: A Case of Six OPEC
Economies

2 Weil, D. N., Economic Growth (2nd ed.). New Jersey:
Pearson Education Inc., 2009

3 Curwen, P. J., Inflation. California: Macmillan
Press, 1976

4 Radcliffe, R. C., Investment: concepts, analysis, strategy
(5th ed.). London: Harper Collins, 1996

5Tauline, M.J., Exchange Rates: Dynamics,
Expectations and Adjustment. New York: Nova Science Pub Incorporated, 2008

6 Hamilton, J.D, Oil and the Macroeconomy since World
War II, The Journal of Political Economy, Vol. 91, No. 2

7 Farrell, G. N, Kahn, B. and Visser, F J. 2001. Price
Determination in International Oil Markets: Developments and Prospects. South
African Reserve Bank Quarterly Bulletin, No. 219. March 2001

 

8Farrell, G. N, Kahn, B. and Visser, F
J. 2001. Price Determination in International Oil Markets: Developments and
Prospects. South African Reserve Bank Quarterly Bulletin, No. 219. March 2001

 

9 Llie, L.
,Economic considerations regarding the first oil shocks, 1973 to 1974, Lucian
Blaga University of Sibiu, . 2006

10
Suleiman,
M. ,Oil Prices, Oil Demand, Economic Growth and the Resource Curs, Surrey
Energy Economics Centre, 2013.

 

11OPEC
Annual Statistical Bulletin,2016,
https://www.opec.org/opec_web/static_files_project/media/downloads/publications/ASB2016.pdf

12 Kaufmann, R. K., Dées, S., Karadeloglou, P.
and Sánchez, M., Does OPEC matter? An Econometric Analysis of Oil Prices, The
Energy Journal, 2004

13 Dunsby, A., Eckstein, J., Gaspar, J. and
Mulholland S., Commodity Investing: Maximizing Returns through Fundamental
Analysis, New Jersey: John Wiley & Sons, Inc, 2008.

14Organization of Petroleum Exporting Countries
(OPEC), 2018, http://www.opec.org/opec_web/en/about_us/25.htm

 

15 Jime´nez-Rodr?´gueza,
Rebeca and Sa´nchez, Marcelo , Oil price shocks and real GDP growth: empirical
evidence for some OECD countries, Applied Economics, 2006

16Crafts,
Nicholas, Fifty Years Of Economic Growth In Western Europe: No Longer Catching
Up But Falling Behind?, 2003, Stanford Institute for Economic Policy Research

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