The Jasmine revolution which is sweeping through North Africa and the Middle East started with a young man setting himself ablaze because; 1. He had no job prospects in the field he studied, 2. He was thus forced to sell on the streets and when he was shut down because he couldn’t afford a trading licence, he set himself on fire in protest and then just like wild fire, the revolt spread fast across Tunisia, Egypt, Yemen and Libya to mention a few.
The turmoil in those regions isn’t just for the North Africans and Arabs, it’s a problem for everyone. The jasmine revolution is sweeping through the largest oil producers of the world giving a shock to the oil supply. At the top of the list of things to worry about as a result of the turmoil is almost assuredly the flow of oil. Recently the Europe Brent spot price of crude oil is around $115 per barrel for the first time since the start of the recession. This price was reached as a result of speculation that supplies of oil may be interrupted because of the unrest within the region, despite assurances by Saudi Arabia, a major petroleum exporter to make up for any shortfalls in supplies. There is reason for concern as a sustained increase in the price of oil will adversely affect employment in the world where there is continued struggle to recover from job losses resulting from the recession. Though the 30% price spike over the year to date isn't big enough to be a major shock, and the world economy isn’t as vulnerable as in 2008, any further uncertainty and spikes in oil prices could lead to a resurgence of the economic crisis.
Research by economist James Hamilton of the University of California, San Diego suggests that oil prices imperil the economy when they reach a new three-year high. Steven Kopits, managing director of the energy consulting firm Douglas-Westwood, says the overall economy is threatened when the 12-month average oil price exceeds the year-ago 12-month average price by more than half. Below those levels consumer and investor expectations aren't sufficiently disrupted to make a difference. Both conditions are not far from being triggered at today's prices.
Furthermore, higher prices will hit consumer spending hard as inflation continues to rise because of higher energy expenses calculated into commodity prices. Currently, some of the concern about higher oil prices is justified. The turmoil in Libya, a country with the ninth largest reserves of oil in the world, has forced some oil companies to curtail operations and evacuate their employees.
In Botswana, we have lagging oil prices; the latest 10thebe increase, was below expectations and doesn’t reflect full oil price increase to date. The expectation is that, we will see another oil price increase if international oil prices continue to rise. The impacts felt globally will also be felt at home; the rise in commodity prices coupled with stagnant salaries will lead to slow economic growth as consumer spending falls in real terms. Moreover, if the US and EU economic recovery is slowed down, this could have a negative impact on our economy because it would affect demand for our exports.
In conclusion, if sustained, these oil price increases have the potential to sap the strength from a global economy striving to recover from the worst decline since the Great Depression.
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