Tension have been brewing recently in the gulf region following some unilateral actions taken by one of the World’s super powers. These actions although distant, trigger certain mechanisms, specifically relating to crude oil pricing, whose ripple effect can impact us as a nation.

Crude oil is arguably the most precious natural commodity in the world. It can be a curse or blessing to nations if not properly managed. The Research Department of International Monetary Fund (December, 2000), indicates that the rise (instability) in oil prices will give rise to price increases in the economy. These price increases affect individuals, businesses and households in varied  ways, some of which include;
increases in production costs for especially businesses that use fuel as a major input and who mostly pass on the added costs to the final consumer.

Transport operators are the most exposed to fuel price increment as it remains a major input to their business. In such a case, transport unions are forced to pass on the added cost to commuters in the form of increased fares. Fuel price increases dent disposable incomes, by adding on to households’ budgets for not only fuels but also transport fares and essential commodities and other goods/services like utilities. High fuel prices over a prolonged period may compel households to re-allocate resources by saving less or cutting down on expenses. If the period of high prices of goods and services last long, leads to an inflationary effect.

The economic reaction to higher inflation may eventually result in increased interest rates. Aside higher interest rates, prolonged inflation results in higher unemployment, higher utilities, currency depreciation, demand decline, tax revenue decline, and less real economic output; negatively affecting the overall economy.