Energy prices are not just a big issue in the United States, it's a big one in other nations around the globe as well. The subject of oil is currently dominating the economic and political landscapes as the future of the economy and geo-politics is being hotly debated. Looking back, oil last took center stage back in the 1970s when it, coupled with a food crisis, contributed to a surge of new debt by third world countries.

This new cycle of debt granted tremendous influence and power to organizations like the International Monetary Fund and the World Bank. During this period of time these organizations saw their economic policies implemented at an unprecedented level. Many economists and political activists see a lot of similarities with the oil and food crisis of the 70s and what the world is currently experiencing, however the political and economic environment are certainly different.

For example, the first 25 years after the World War II saw huge and sustained economic growth in Europe and America. In fact, the demands created by reconstruction activities after the war and the aid system in the 1950s helped propel this economic growth. Once the 1970s arrived the market was overheated in terms of demand. In addition, the rise of Japan and the competitive edge of Japanese products in Asia, the oil wealthy countries in the Middle East and the United States also created a sense of urgency to create new markets.

The current economic climate is much different. The surge in growth over the past decade and a half has been largely spurred by the growth of Asian economies, of Latin America, and parts of Africa. In addition, the populations of China and India have now become an economic asset, instead of a liability, in terms of productive capability and domestic market expansion. Such a growth is partly due to new infrastructure 

development in different parts of Asia and also due to the competitive edge in terms of cheap labor and skills.

And due to the disappearance of jobs, there is a fast emerging, vulnerable, middle class and poor across Europe and the United States. The migrant communities which provided the crucial labor force during Europe's growth period have become a political liability now.  This means there is more political and economic insecurity among a large number of the working class, vulnerable middle class, and the poor.

The current rise in oil and food prices could very well ignite another economic shift in the world. Oil spending as a share of global economy may cross 7 percent, which is more than the peak in 1979. Oil drives the engine of the present global economy. The United States consumes 25 percent of the world output. Though demand in China and India increased, China consumes 9 percent and India consumes 3 percent of the total oil demand.

All these economic developments with energy and food prices imply that this particular phase of economic globalization will not be sustainable and it will propel the world into the next phase. There will more than likely be more protectionism, particularly in terms of commodity markets. There will also be more regional trade and regional economic activism. This will lead to the regulation of money flow.

The elections and politics of Europe and United States will be forced to address the issue of the vulnerable middle class and the poor. The health system and social security are also being targeted for big changes. There will be political pressure to increase the allocation for the social sector and for creating new jobs and a reduction of foreign aid. 

The international community is on the doorstep of a new economic and political phase. The present economic slowdown is likely to persist for the foreseeable future. It will influence the shape of the economy, political dynamics and geo-politics in the years to come.


Jeff Neal 
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
Visit Jeff’s Forum
Listen to Jeff at www.ProfitStrategiesRadio.com