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The Rising Oil Prices: Causes and Solution Essay


The global oil supply has not increased since 2005 and the world has undergone the worst financial crisis since the Great Depression. The decline in the oil supply has adverse consequences to the economic growth (Tverberg 28). This is a grave problem for all; however, common person is not concerned with the effect of such depletion. All he can see is rise in the price of gasoline and cooking gas. However, analysts are concerned with the depleting resources and skeptics predict that the resources will soon be exhausted. This essay is an exposition of the present state and causes of the rising oil prices and depletion of the oil resources. In the end, the essay tries to provide a practical solution for the situation.

Depletion in the oil resources is an evident problem. Dr. M. King Hubbert has predicted a bell shaped oil production curve. He stated that in the 1970s oil production was highest after which the production has gradually declined, indicating a bell shaped production curve (The Economist). Based on the success of Dr. Hubbert’s predictions, geologists have applied his methodology to estimate the present oil production and they fear that global oil production will peak in the coming decade and then there will be a decline in the oil production (The Economist).

Presently, depletion theorists believe that the depletion of the oil resources has already begun and the global oil production has already reached the slippery part of the bell shape devised by Dr. Hubbert. However, another group of scientists believe that there will be enough oil to meet the demands sufficiently until 2020. However, even in such a situation, rise is oil prices are inevitable. The increasing prices of energy have led to severe economic pressure on economies and more importantly common person.

A study on the depletion of oil resources in oil rich country – Syria – has demonstrates that it has led to greater increase in interest rate (Tverberg). Syria has been an oil exporter, however, depletion in its oil resources has endangered the financial condition of the country. When oil supply is high, the revenue from export helped in public finance for developmental activities and international industrial and agricultural production. However, with a decline in the oil production, and consequently, export, the Syrian government failed to meet the developmental needs of the country, and hence led to increase in internal inflation, especially that of food and consumer goods. The internal unrest has become so acute that the country faces the threat of an imminent civil war. Similar situation has been observed in other oil-rich countries like Egypt, Yemen, and Tunisia.

In another research, Dr. Tverberg demonstrated the decline in the real GDP due to the depletion of oil resources in the USA (Tverberg 29). The reason for this, he says, is the mismatched rise in oil prices and the rise in income. He says that when oil prices rise in the short run, salaries do not rise matching the rise in the prices, which causes the fall in the real GDP. Fuel is a necessity in modern life, especially for commuting and food. With rise in oil prices, real income falls, as necessities become dearer. Eventually, common person cuts down his purchase of discretionary goods, as his disposable income decreases, for he has to spend more in the necessities.

Consequently, the industries producing discretionary goods are adversely affected, resulting in reduced production, and eventually laying-off of workers. Thus, depletion of oil creates a spiral effect on the economy, ultimately causing recession. Historically, the growth in GDP has been higher than the growth in oil production, however, recently, the rate of growth of GDP, though higher than oil, has shown a downward sloping trend, along with the declining growth of oil production. Further, data also demonstrates that oil-importing countries are worst hit than the oil producing and exporting countries. It is believed that the peak use of oil that will eventually lead to the depletion of the resources, will adversely affect the resources to combat climate change and global warming.

The solution for the increasing threat of oil depletion is two fold. First is the increase the use of renewable energy sources. Renewable energy has been the focus of scientific research, as it is believed that it is the only possible solution to the impending oil crisis. One solution that a common person often employs is the use of electricity rather than crude based fuel. For instance, instead of cooking gas, there has been a rise in use of electricity based cooking utensils. However, one problem with this is that in many parts of the world electricity is still produced from coal, which again is a finite resource.

Therefore, the focus should be on devising a source of energy, which has infinite source like water and air. Second solution to this problem may be alternatives for crude such as heavy oils, tar sand, and oil shales. Heave oil, pumped in similar fashion as petroleum, is thicker and may cause greater pollution. These are found in almost 30 countries but 90 percent of the reserves are found in Venezuela. Tar sands can be excavated from sedimentary rocks. This provides 20 percent of the oil supply of Canada. Oil shales though abundantly available in the US, are an expensive alternative for it requires high processing cost.

Works Cited

The Economist. 2001. “” 2001. The Economist. Web.

Tverberg, Gail E. 2013. “” Web.

Tverberg, Gail E. “Oil supply limits and the continuing financial crisis.” Energy 37(1) (2012): 27-34. Print.

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IvyPanda. (2020, May 29). The Rising Oil Prices: Causes and Solution. Retrieved from https://ivypanda.com/essays/the-rising-oil-prices-causes-and-solution/

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"The Rising Oil Prices: Causes and Solution." IvyPanda, 29 May 2020, ivypanda.com/essays/the-rising-oil-prices-causes-and-solution/.

1. IvyPanda. "The Rising Oil Prices: Causes and Solution." May 29, 2020. https://ivypanda.com/essays/the-rising-oil-prices-causes-and-solution/.


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IvyPanda. 2020. "The Rising Oil Prices: Causes and Solution." May 29, 2020. https://ivypanda.com/essays/the-rising-oil-prices-causes-and-solution/.

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IvyPanda. (2020) 'The Rising Oil Prices: Causes and Solution'. 29 May.

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