Manufacturers are the most affected as they have to absorb the transportation costs borne by the transporters. This often results in a price hike which lowers profits. Companies who have to cut their profits lay off staff which affects consumer spending power. These actions hurt the economy in the longer run as it causes inflation and puts pressure on the government to raise wages so that consumers can afford to pay higher prices. Wages are never increased with rising prices so this result in people becoming poorer and it weakens the economy. Unemployment deters people from buying goods and results in lower sales. This causes more layoffs and pushes the economy to go down.
The automobile industry has been the most affected as car sales have slumped due to the increase in oil prices. Consumers are wary of buying SUVs because they consume a lot of fuel. SUVs form a large chunk of sales for American car makers. It has also affected sales of items such luxury trailers and campers. This has slowed down the rate of growth drastically. People are afraid of buying new cars as they don't want to pay a large amount of cash to fill up their tanks. This has made them look for fuel-efficient cars which are the staple of foreign manufacturers. The U.S. Automobile industry is affected because they have a large inventory of SUVs which are the highest profit earners for them. This is one reason why Car manufacturers have laid off a large number of employees in order to increase profits.
The demand for oil supply keeps increasing annually due to the growth in developing and developed nations. The total supply of oil came to around 83 million barrels a day in 2004. There has been no letdown in oil prices despite the increase in oil supply. Experts feel that Oil supplies will be exhausted in the future and the world will have to rely on some other alternatives. The supply of Oil is controlled by the OPEC and a cartel of oil companies. The main problem is that oil supplies may finish in a couple of decades. The Oil crisis has had a bad effect on the U.S. Economy and led to heating oil prices to increase by around 30% in the last quarter of 2005. This has also led to an increase of 48% for natural gas prices.
The Iraq War has had a major impact on the macro-economics of the U.S. It has led to the increase of the price of oil, Defence expenditures and the wave of insecurity triggered by the war. The War in Iraq led to the Madrid and London bombings which have triggered off a wave of insecurity. Security threats are responsible for a higher cost in security costs. This has led to a number of trade barriers being placed which have limited the flow of goods. There is an unusually high level of security at all ports of entry in the United States. This has deterred a lot of people from visiting the U.S. Or doing business with them. High Security has reduced the flow of International Students to the U.S. which is a big blow to the economy as it depends on them to contribute large sums of money to their economy. This causes a big downturn in the Science and Technology industry as most of the International students do their specialization in that field. U.S. Companies depend on a large number of international student graduates for their workforce.
Oil prices are at an all-time high nowadays due to the impact of the Iraq War on the global oil market. It is felt that the U.S. invaded Iraq because it has a large number of oil reserves. Theorists also feel that Iraq was invaded because they had switched to the Euro for its oil trade. The U.S. was threatened by that move as it would have shaken the foundation of its economy if the rest of the world followed suit. The Oil Industry has been the only industry which has benefited from the war due to the healthy profits they reaped. It costs a lot of money to extract oil in Iraq due to the high level of security required over there. Experts feel that the cost of extracting oil would have been lower had there been no war as Iraq would be allowed to expand its oil production. This would have lowered oil prices around the world. Security problems have made the Middle East a security risk for investment despite the costs of extraction being lower than elsewhere. The war has created a lot of insurgency which has reduced the oil production.
The war on terror has not been a very successful operation. The war in Iraq has led to expensive oil prices, inflation and a downturn in the Global Economy. Most of the industries in the U.S. except for the Oil industries have been affected by the increase in oil prices. The Iraq war has added more debt to the U.S. Trade deficit and has added more burden to the U.S. economy. It has made the cost of heating and traveling more expensive for people in the U.S. The Iraq war has been a domino effect which has affected everyone around the world.
Bilmes, Linda & Stiglitz, Joseph (2006). The Economic Costs of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict, NBER Working Paper No. 12054
Surowiecki, James (2005, May). Oil Change. The New Yorker
Perry, George L. (2001).The War on Terrorism, the World Oil Market and the U.S. Economy, The Brookings Institution
Behravesh, Nariman, (February 2003).Iraq War Scenarios, Global Insight
IMF, (2000)" The Impact of Higher Oil Prices on the Global Economy" Washington: International Monetary Fund
Recknagel, Charles, (2000, November) Iraq: Baghdad Moves to Euro, Radio Free Europe