GLOBAL economy has experienced three big oil shocks, during recent five decades.

First time in
1973, when oil export has been stopped by OPEC countries in response of Arab-Israel war.
Because of less production oil prices jumped from $4.15 in 1973 to $9.07 in 1974.second time, in
1979, ironic revolution cut off the sovereignty of shah, so, oil production in Iran dramatically
decreased, in result oil prices increased from $12.46 in 1978 to $35.24 in 1981.since 1999,we are
experiencing a third big oil shock in global history. In this oil shock, oil prices make new records and
its impacts are clear and seeable in economies of all countries of the world. In an economic sense,
an oil shock is defined as increase in oil prices large enough to cause a recession or a significant
decline in global economy. The 1973, 1979 and recent episode both qualify as oil shock by the
definition. Recent oil shock emerge in March 1999, when most petroleum analysts viewed oil prices
as artificially low, and the resulting low prices cut revenues to oil exporting countries. To address this
situation, OPEC met in March 1999 and agreed to cut production, with goal of increasing crude
prices to around or just above $20 per barrel. It has been argued that the recent oil price increases
may be another oil crisis. Some assert that the recent oil price increase in third oil shock, while
others affirm that it is totally different from the previous oil shocks. Even though there is little
consensus on the oil crisis issue, it is evident that the recent oil price increases have affected
differently between developing and developed countries. Many international organizations warned
that high oil prices would hit developing countries. IMF noted that poor countries, particularly
dependent on non-oil commodity exports, have been hardest hit by the rise in world oil costs. Oil
price changes affect economic activities such as growth, inflation, trade balance, and so on. It is
generally agreed that oil price increases lead to sluggish economic growth. Higher oil prices affect
the global economy through a variety of channels. In the case of oil price increases, there will be a
transfer of income from oil consumers to oil producers. On an international level, the transfer is from
oil importing countries to oil exporters, and oil exporters tend to expand demand only gradually. It will
affect income redistribution of the global economy. Also, when oil prices increase and energy input
prices rise, there will be a rise in the production costs in the economy, depending on degree of
competition of the markets. This effect is seeable in our textile sector which is facing crises of life
and death. There will be a demand side impact of oil price increases. When oil prices rise,
consumers are likely to delay or postpone their purchasing durables such as automobiles. This
demand side impact leads to relative increase in inventories to sales and then decline industrial
production. Finally, depending on expected duration of price increases, the change in relative prices
creates incentives for suppliers of energy to increase production and investment, and for oil
consumers to economize. Among the oil importing countries, the largest impact on GDP growth and
the balance of payments is expected to be in India, Korea, Pakistan, Philippines, Thailand, and
Turkey. The oil price increases will affect China's economic recovery, yet the direct impact of oil
price hikes on China's economy should be much less than that on most Asia-Pacific countries as the
ratio of net oil imports to domestic oil consumption is much lower than the Asian average. The oilimporting emerging market economies should be able to smooth the impact of the shock with private
finance, through some with already large current deficits will have to proceed with caution. Oilimporting developing countries without access to private capital markets is facing an additional
official financing need.

http://nation.com.pk/business/04-Jan-2009/Impact-of-oil-prices