Assessing the Impact of Oil Crisis on the World Economy and Price

This report investigates the impact of the oil crisis on the world economy, focusing on the role of oil prices, GDP, and alternative energy solutions. It addresses the perennial low demand and supply elasticity in global oil markets, leading to price fluctuations, and examines the reasons for these fluctuations, particularly in light of the 2015 oil decline. The study aims to understand the effects of oil price volatility on the global economy and explores potential alternatives to oil. The research employs a macroeconomic model to assess the implications of supply and demand elasticity on oil prices, analyzing the interdependencies of various demand and supply factors. The findings offer insights into the impacts of oil crisis and can help stakeholders in the oil sector develop better strategies to manage price fluctuations and explore alternative energy sources, while also providing valuable information for future business investors in the oil sector. Desklib provides a platform to explore similar solved assignments and past papers.

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Contents
Introduction......................................................................................................................................4
Problem statement...........................................................................................................................5
Research aim and Objectives...........................................................................................................6
Justification of the project...............................................................................................................6
Potential research output..................................................................................................................8
Conceptual framework.....................................................................................................................9
Methodology..................................................................................................................................10
Oil Supply Elasticity of the model.............................................................................................11
Qualitative and Quantitative data..................................................................................................12
In-depth review of literature..........................................................................................................12
Organization of the study...............................................................................................................13
Project budget and budget justification.........................................................................................14
Estimated Budget.......................................................................................................................15
Gantt chart.....................................................................................................................................16
References......................................................................................................................................17

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Project title: Impact of Oil Crisis on the world economy considering the price
Introduction
Since the year 2014, the prices of oil have been declining. Most analysts as far as the oil business
is concerned have been taken by surprise considering the current prices of oil across the world
(Arezki and Blanchard, 2014; Kilian, 2014). The reductions in the prices of oil among different
economies today have been attributed to numerous factors including the role of demand and
supply factors in the oil business today (Mohaddes & Pesaran, 2016; Kilian and Hicks, 2013).
Due to low supply and demand price elasticity, the different disturbances associated with
different market sides lead to significant price fluctuations (Obstfeld et al., 2016). The current oil
market across the world had experienced significant shocks for the past few years (Gadea et al.,
2014; Arezki & O Blanchard, 2015). Disturbances can be attributed to various sources including
extraction technologies, new discoveries, armed conflict and many others ( Arezki et al., 2017:
Kilian and Lee, 2014). The highly weakening relationship that exists between the economy and
the prices of oil can be attributed to the different changes as far as the underlying shocks in
relation to the oil prices are concerned (Peersman & Van Robays, 2012; Filardo et al., 2018).
According to the different authors who employed the use of VAR models, increases in the prices
of oil due to supply shocks have highly pronounced impacts or effects as far as the economy is
concerned than the ones as a result of demand related shocks (Lippi and Nobili, 2012; Lasky,
2016). Recently, shocks as far as oil supply is concerned alone which are majorly represented by
the current existing disruptions in the crude oil production across the globe are unable to explain
the bulk of fluctuations in the prices of oil (Peersman and Van Robays, 2012; Sussman & O
Zohar, 2016). However, the demand of oil due to the highly growing economies has been the

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major oil price driver (Baumeister and Kilian, 2015; Gospodinov, 2013). In addition to the
above, such a weakening relationship as far as the prices of oil and the world economy are
concerned can be attributed to the existing changes as far as the transmission of shocks is
concerned (Blanchard and Riggi 2013; Byrne et al., 2017). Moreover, the previously used
empirical models as far as the different shocks associated with the fluctuations in the prices of oil
are concerned are not best suited to explore the interdependencies of the different demand and
supply factors affecting such prices (Obstfeld et al., 2016; Bernanke, 2016). This research paper
seeks to establish the impact of oil crisis on the world economy putting into consideration the
price.
Problem statement
Global oil markets face perennial low demand and supply elasticity that are susceptible to slight
disturbances, always resulting in sharp fluctuations in price on either side (Arezki, 2017). During
the recent oil decline of 2015, global crude oil prices have reduced by more than half to about 28
dollars a barrel in 2018. Unfavorable revisions to economic prospects cause reduced global
demand while supply is affected by many reasons including; terrorism and armed conflict,
alternative energy, foreign policy and changes in the system of the Organization of the Petroleum
Exporting Countries (OPEC) (Heffron, & Little, 2016). Disturbances in the oil market are
amplified by overdependence on oil as the sole source of energy, in the recent past; however,
investment in alternative energy is likely to mitigate this situation (Arezki, 2017; World Bank,
2015).

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Research aim and Objectives
The main aim as far as this study is concerned is to understand the impact of oil crisis
particularly as a result of fluctuations in the oil prices to the overall world economy. In order to
better understand such facts, this research study will assess different factors affecting the prices
of oil, including how oil price fluctuations have affected the economy of different States. This
research intends to answer two main questions and they include:
What are the other alternatives for running the world other than oil?
How can the world GDP be impacted or affected by the oil crisis?
The main Objectives of the study include:
 Establish the different alternatives, which can run the world apart from oil
 Assess how the overall GDP of the world has been affected by fluctuations in the prices
of oil
 Assess the impact of oil crisis on the world economy putting into the concept of the price
and other alternatives to run the world
Justification of the project
Given the numerous issues discussed in the problem statement of this research study, it is
obvious that the world economy has been vividly shaken by the current oil crisis particularly the
prevailing fluctuations in the prices of oil. This research study will provide very important
insights concerning the different impacts associated with the current oil crisis including the
causes of fluctuations as far as the prices of oil today are concerned. More so, it is obvious that
different global markets today are prone to low demand and supply elasticity, which largely

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contribute to the different fluctuations in the prices of oil across the globe (Blanchard and Riggi,
2013). This research study intends to dig deeper into the reasons for the current low demand and
supply elasticity hence leveraging how best to deal with such an issue. Moreover, it is obvious
that the previously used models in studying the relationship between the current oil crisis and the
world economy have not been fruitful. This research study will employs a simple
macroeconomic model as far as the oil market is concerned to establish the implications
associated with supply and demand elasticity on the prices of oil across the world. This research
project proposal will therefore allow a highly focused and detailed look into the current shocks
affecting the prices of oil (Chen et al., 2016). Therefore, it will provide the different companies
and stakeholders in the oil sector an opportunity deal with the demand and supply disturbances
affecting the prices of oil in a better way hence giving them an opportunity to grow with in the
oil sector (Davig et al., 2015). This research proposal will therefore give different
recommendations as far as the different strategies, which are required in remedying the current
oil crisis is concerned (CEA, 2015).
As far as the different issues presented in this proposal's problem statement are concerned, this
research proposal is associated with the following benefits.
 This research proposal will allow a detailed discussion into the current oil crisis across
the world hence suggesting new and better strategies or alternatives that can be directed
towards mitigating the oil crisis issues presented in the problem statement.
 This research proposal will help in the provision of highly important research results,
which can help firms in the oil sector across the world, understand the current shocks
affecting the prices of oil hence making necessary changes to deal with the current oil
crisis

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 This research proposal will help in the provision of various alternatives that companies
currently dealing in the oil business can adopt in order to supplement their income apart
from the oil business
 This research proposal will provide very important results, which will greatly benefit
researchers, oil policy makers, and the entire oil sector across the globe
 This research proposal will be of great importance to the different new ventures in the oil
business since it will provide them with information how the current world GDP has been
affected by the oil crisis, therefore allowing them to make better decisions before entering
the oil sector business.
Potential research output
The different outcomes as far as this research study is concerned will provide different readers
with a greatly analytical framework for conducting an investigation as far as the impacts of the
current oil crisis on the world economy is concerned. The research results that will be obtained
will be of great help to the different parties concerned as far as the development and analyzation
of the current oil crisis across the world is concerned including the different strategies, which can
be adopted to ensure that the different shocks that are causing significant fluctuations in the oil
prices are minimized. Irrespective of the fact that variations exist currently in relation to the
research results obtained concerning the current oil crisis, this research output will therefore
provide a bigger picture into the different shocks in relation to the demand and supply
disturbances affecting the prices of oil. In relation to this research proposal, the different
objectives of this research study discussed in this proposal will be answered putting into
consideration the research findings obtained, the research data collected and the research analysis

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of the results obtained. All the different outcomes of this particular research study will be treated
as great academic work in regards to the current oil crisis across the world. In addition to the
above, this research study will act as a guiding document for different decision makers in the oil
sector across the world since it will provide important insights into the current price fluctuations
in the oil sector. As far as future business investors in the oil sector are concerned, this research
study will help them make better decisions as far as the prices of their oil products and services
are concerned through adopting better pricing strategies to minimize fluctuations in the prices of
oil. Particularly, this research study will benefit decision makers in different oil companies in the
oil sector to better understand the current oil crisis and develop better strategies for leveraging
such a situation.
Conceptual framework
The conceptual framework of this research study greatly relates to the integrated model for
demand and supply. This model integrates four different views concerning the main drivers the
market of oil is concerned into a single model that dwells on supply and demand fundamentals.
The supply of oil across the globe can incur constraints in a short time as a result of the
technology used in the extraction of oil. More so, the supply of oil becomes more elastic after a
long time due to the fact that the supply of the different oil products can end up increasing as a
result of higher prices of oil that comes about due to different innovations associated with the oil
extraction and exploration technologies (Lippi & Nobili, 2012). In addition to the above, the
different factors in relation to demand, particularly the globally trending output business and
growth cycles, can influence the demand of oil and its respective products hence affecting the
prices of oil. More so, oil conservation and substitution, particularly the adoption of renewable

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and alternative sources of energy and the current improvements associated with the efficiency of
oil use, can further be fundamental to better understanding the market of oil across the globe.
This integrated model further operates on an assumption that the prices of oil undergo
instantaneous adjustments and in a highly continuous manner in order to ensure that, the oil
market is cleared. This research model further discusses that the prices of oil are potential factors
influencing the economic downturn and upturns of the world. Low prices of oil increase the
cyclical output of the world. This research model was estimated using the estimation techniques
of the nonlinear Bayesian. The IEA's Monthly database as far as the oil market reports are
concerned was used to obtain the annual data as far as the production of oil is concerned. Such
data includes data on crude oil, gains as far as refinery processing is concerned, and the natural
gas liquids. In addition t the above, the IEA's oil import price was used to measure the real prices
as far as the oil is concerned. Furthermore, the IMF World Economic Outlook GDP data was
used to obtain the data for the different GDP's across the globe (Basak, and Pavlova, 2016).
Methodology
The study proposes to use simple oil market macroeconomic model because it has the power to
project long behavior of oil prices (Thomas, 2018). This model incorporates the four market
drivers into a simple model focused on the basics of demand and supply. These drivers are oil
extraction, oil supply chain, demand factors and oil substitution and conservation (Arezki, 2017).
An admonition is all-together, nonetheless, because basically watching the developments of
expansion and development around oil stuns might misdirect. Remember that oil stuns have
regularly agreed with other monetary stuns. During the 1970s, there were substantial increments
in ware costs, which escalated the impacts on swelling and development. Then again, the mid

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2000s were a time of high efficiency development, which counterbalance the impact of oil costs
on swelling and development. Along these lines, to decide if the connection between oil costs
and different factors has genuinely changed after some time, one must go past easygoing
perceptions and advance to econometric investigation, which enables specialists to control for
different improvements in the economy when concentrating the connection between oil costs and
key macroeconomic factors (Filardo and Lombardi, 2014). Simple oil market macroeconomic
model assumes that, in the short run, the technology used to extract oil can constrain its supply,
in the medium to long term, innovations in oil exploration and extraction technologies may cause
a rise in supply and prices (Arezki, 2017). Growth in global GDP, business cycles and other
demand factors can lead increase in demand and prices of oil while decisions aimed at oil
conservation and substitution significantly influence market of oil. Lastly, this model assumes
that oil prices automatically and continuously adjust to clear the market (Arezki, 2017).
Oil Supply Elasticity of the model
Apart from the model described above, this research study will also employ other methods in
addressing the different objectives outlined in the research proposal. These include:

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Qualitative and Quantitative data
This research study will include a review of research data for the past decades or the oil sector
through strong emphasis will be put on data concerning the prices of oil since the year
2014.Different drivers of the different prices of oil across the world will be focused on including
both the demand and the supply disturbances. More so, the research data obtained will be
analyzed using both the qualitative and the quantitative methods of analysis. In respect to the
qualitative data obtained concerning the current oil crisis, oil forums and surveys will be used.
On the other hand, the qualitative kind of analysis will involve the use of excel sheets, pie charts,
mathematical and statistical methods. The main method, which will be used in analyzing this
research’s data, is the descriptive statistics method. Hypothesis testing will further be employed
in this research study and strong consideration will be put on establishing the likelihood of the
type 1 and type 11 errors. A group of concepts of literature will further be used in the analysis of
different qualitative data.
In-depth review of literature
This research method is aimed at developing a clear and better understanding of the topic under
study particularly the oil crisis across the globe. Different fundamental thematic study areas will
be researched in order to obtain better insights concerning the study topic. This review of
literature will put its main emphasis on different these including the current prices of oil, the
different shocks affecting the prices of oil and many others. Analysis will be done on all the
different literature and relevant information obtained as far as the current oil crisis is concerned.
The literature, which will be reviewed, will further include peer-reviewed journals, newspapers,
online articles, oil company annual reports, and many others. A group of methods including the

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review of literature and the oil market macroeconomic model will be used in order to make sure
that the different study results obtained as far as the current oil crisis is concerned are very
accurate and therefore give correct insights to future researchers as far as this issue is concerned.
Data obtained from such different methods will then be analyzed to come up with a general view
as far as the current oil crisis is concerned.
Organization of the study
The following organization will be used as far as the research is concerned. The study will be
divided into five different chapters.
Chapter One will include the main introduction as far as this research study is concerned. This
chapter will therefore cover the different aspects of the research proposal, which will be used in
this main research as described in this particular assignment
Chapter two will discuss different aspects concerned the current oil crisis across the world. This
chapter will therefore majorly focus on reviewing different literature concerning the current oil
crisis across the globe
Chapter Three of this research will focus on the provision of different details in relation to the
methodology that will be used in the final research. This particular section will therefore cover
different subsections including the research’s literature review, the methods of collecting data,
and the methods of data analysis.
Chapter Four of this study will mainly concentrate on the discussion of the different findings of
the research study. Furthermore, such findings will be analyzed under this particular section

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Chapter five will concentrate on the provision of the summary of the main study outcomes of
findings that the study will provide. Furthermore, this particular section will include a discussion
of the different implications of this particular research to the oil sectors across the world.
Project budget and budget justification
The budget that was anticipated as far as the research proposed in this proposal is concerned is
around & 8000 if the researcher is to effectively and smoothly conduct this particular research
with in its allocated time which is 30 October 2019.This research budget has different
specifications and they are discussed below:
As far as the review of literature concerning this research study is, concerned, different resources
will be required. Among these includes online resources, journal articles, textbooks and
numerous others. Such resources will therefore cost an estimated sum of $3000
The collection of data as far as this research will require some funds. Funds in relation to the
collection of data will be particularly spent on travelling expenses, mailing expenses, telephone
call expenses and many others. Furthermore, the researcher will be forced to personally reach out
to some high profile personalities across different States hence incurring more costs. The
estimate figure for such expenses is around $4000
In relation to the analysis of data, the researcher will need to make use of different tools of data
analysis. Among these includes tables, reports made in relation to the oil sector, charts and
government figures. Therefore, money needs to also be directed towards the concept of data
analysis. The estimated cost that will be spent on the analysis if data is $1000

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Estimated Budget
Purpose Estimated Amount to be Spent
Literature Review $3000
Data Collection $4000
Data Analysis $1000
Total Estimated Budget $8000
Gantt chart
 The project’s timeline
Task to be
done
Start Day End Day Duration
(Days)
Proposal of the project 02/06/2019 1/07/2019 30
Review of literature 02/07/2019 1/08/2019 30
Collection of data 02/08/2019 01/09/2019 30
Analysis of data 02/09/2019 01/10/2019 30
Final Submission of the
report
02/10/2019 01/11/2019 30

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3
0
8/1
7
Final Report
Submission
3
0
8/1
7
Data
Analysis
3
0
6/1
7
Data
Collection
3
0
8/
17
Literature
Review
3
0
8/1
7
Project
Proposal
MILESTONES AND DELIVERABLES
7/11/201427/12/201415/02/20156/04/201526/05/201515/07/20153/09/201523/10
/201512/12/2015

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