What do you think about when you read the following headline? “Oil price up 10% this month!”
Do you just wonder how much it will cost to fill your car? That’s what most of us think about – and nothing more. However, oil prices can affect many aspects of our lives and virtually every part of a country’s economy. Every stage of the supply chain is influenced by the price and availability of oil and petroleum products.
Some economists say that oil price rises act as an invisible and universal tax on consumers and businesses.
Energy Costs
The most immediate hit to affordability is energy costs. In other words, our electricity and natural gas bills. When oil prices rise, so do electricity and natural gas costs.
Increases in gasoline prices can cause serious financial problems for families on a tight budget. To be able to continue travelling by car, they will need to reduce spending on groceries, annual vacations, eating out, clothes, and/or leisure activities.
People who do not have health insurance, or whose insurance is inadequate, may even consider cutting back on medications. This may lead to serious complications if they have a chronic disease.
For those who live in areas where public transport is sparse, certain job opportunities will no longer be financially viable.
Inflation
Inflation refers to price rises over a certain period across an economy. It is a macroeconomic indicator. If something is macroeconomic, it means that it exists in or affects the whole economy. Examples include inflation, interest rates, economic growth, and unemployment.
Your weekly grocery bill will increase if the price of oil goes up. Transporting fruit and vegetables, for example, from the farm to the distributor, and then to the supermarket, will cost more, because gasoline or diesel is dearer.
If you look around your house, you will find that almost every physical object you own was, at some point, transported by truck, train, ship, or plane. When shipping and production costs rise, transporters, distributors, and other players in the supply chain pass on the extra costs to the last player – the consumer or end user.
Farmers
Agriculture is especially sensitive to oil price fluctuations. Apart from diesel fuel used for tractors and harvesting machinery, most fertilizers are produced using petroleum or natural gas derivatives.
For the consumer, prices rise everywhere. The cost of buying food, cooking, heating or cooling their homes, travelling by car, vacations abroad (flying costs more), and purchasing most household and consumer goods becomes dearer.
Interest Rates
A country’s central bank may need to take action if inflation rises beyond a desirable or optimum level. In the US, UK, and most other advanced economies, the ideal inflation level is 2%.
If oil prices push up inflation to three, four, five percent or more, the central bank will probably raise interest rates, which will increase the cost of mortgages and loans. It will probably slow down the economy as well.
We are now in the second half of March 2026, and the war between the US, Israel, and Iran has, unsurprisingly, raised the price of oil. Consumers, businesses, economists, central bankers, politicians, and others are anxiously hoping the war will end soon and the threat of high inflation will disappear. All we can do for now is wait and see.
