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The Indirect Effects of High Oil Prices

The Indirect Effects of High Oil Prices

Rising oil prices usually promote a negative reaction from most people. While there are definite disadvantages to high oil prices, there are some indirect effects that aren’t necessarily good or bad, just not always expected.

Alternative Energy Surges – Rising oil prices always boost alternative energy discussions, and in turn, investments are routed in that direction. This helps create jobs, promotes R&D spending and eventually, may help drive down oil prices by providing a viable and clean alternative.

Declining Growth in Asia – China is one of the fastest growing countries in the world in terms of industry and economy, and they heavily rely on oil to maintain their growth rates. Not only do higher oil prices slow them down like any other country, but they use energy in a much less efficient way, hurting growth even more.

USD Goes Up – While this may not be the case at the current price hike, the US Dollar has traditionally seen a rise in value when oil prices went up. This happens because oil is generally priced in dollars, and the demand for the currency rises with higher energy costs.

Other Energy Sources – When oil prices rise significantly, it is almost always followed by an immediate increase in demand for other energy-centric resources, such as coal and natural gas.

Other Investments – When oil prices go up, many investors look elsewhere for investment options. This has a stimulating effect on the economy.

Oil-Related Products – Products which both directly and indirectly affected by a rise in oil prices include flights, hotels, plastic (manufactured from oil), etc.

Foreign-Made Cars Surge – Many foreign car makers, such as the Asian manufacturers, will see a rise in sales. The higher gasoline prices push consumers towards more fuel efficient cars, which until lately wasn’t a main design concern for American made cars.

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