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Skyrocketing Prices Cloud Global Economy
Oil prices have skyrocketed to reach $90 per barrel, raising concern that they could continue to climb to $100 in the near future. The situation is all the more gloomy with many experts foreseeing a potential second oil shock once the price goes beyond $95. Soaring oil prices have been causing anxiety among businesses and people, alike. For a nation that depends entirely on oil imports, high prices have a far-reaching impact upon the country's economy and the livelihood of ordinary citizens, as they will lead to a drastic rise in commodity prices.
Surging prices have been due to various factors _ rising tensions between Turkey and Iraq; a drop in the value of U.S. dollar; and the possible lowering of interest rates by the Federal Reserve amid an economic slowdown in the U.S. But the problem is fundamental with no solution in sight as it is attributed to supply shortages despite growing demand. So spiraling oil prices are haunting the world economy, nudging countries to brace for a possible worse-case scenario.
High oil prices will result in further production costs in almost all areas _ manufacturing and services _ related to oil. The central Bank of Korea forecast commodity prices will increase 0.2 percentage points if oil prices climb by 10 percent. In this case, inflation will record 3 percent next year _ but the situation could become even more serious should prices hit the $100 level.
Businesses have been desperate to brace for a possible oil debacle. Asiana Airlines, for instance, estimated the average annual oil price at $63 per barrel early this year, but said it would incur an additional 150 billion won in costs if prices exceed $85. Shipping companies have been searching for ports where they can find cheaper fuel.
For households, there is no particular way of coping with the higher prices than reducing consumption. For instance, the price of gasoline, which stood at 1,555 won per liter last week, has already surpassed the 1,600 won level. It seems campaigns are needed to solicit people to use public transportation rather than their own cars.
The government needs to consider lowering the oil taxes to alleviate the burden on vehicle users. But Deputy Prime Minister-Finance Economy Minister Kwon Oh-kyu rebuffed such a possibility. During a National Assembly session last week, he only stressed the need for the people to reduce energy use. He maintained an easy-going attitude by saying oil prices are not very much different to the situation 25 years ago. Minister of Commerce, Industry and Energy Kim Young-joo also showed too optimistic a viewpoint saying, ``I don't believe the oil prices will continue to increase as soaring prices will retrogress the economy and decrease demand.'' It appears the remarks were aimed at allaying public fear. But they need to come in a more candid manner with more realistic and feasible measures in the face of a looming energy crisis. |
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