Oil price hikes and their impact on Zim’s economy Nadia Murte

This year, the price of oil went up from between $60 to $80 per barrel, a development that severely affects an economy like that of Zimbabwe, since is a non-producing oil country.

Zimbabwe’s economy is directly affected in a negative way as all fuel companies have to adjust to this economic reality, with the increases impacting on consumers.

All sectors of the economy require oil, be it transportation, mining, agriculture, etc.

In the past, the increase in prices of this precious commodity was going up due to problems of demand, and the demand was fuelled by large economies such as China, and the market could not really deliver.

This time around, it is very different. The price of oil is rising due to a supply problem, even of shale oil, largely produced by the USA, which has also become one of the largest oil producing nations in the world in the past five years.

Saudi Arabia, recently decided to do an initial public offering (IPO) of its state-owned company Aramco, and the future valorisation of the company will be based on the price of oil. Thus it is in the direct interest of the Saudis to maintain oil at a high price.

To be certain of this, Saudi Arabia keeps advocating for the reduction of oil production from the Organisation of Petroleum Exporting Countries (OPEC), which for the first time, have been really effective through various agreements signed among the OPEC member states.

Another element that is contributing towards the increase in the price of oil are the economic challenges faced by Venezuela, which is also an OPEC member.

Venezuela cannot produce as much as oil as it used to do in the past, not because the country has less oil than before, but because the country is going through a severe economic crisis that provoked a lack of investment in this key sector of the Venezuelan economy.

This has seen the national oil company producing less and less.

Iran is another factor in the increase of oil price matrix.

After the United States president Donald Trump decided to pull out of the nuclear agreement signed in 2015 between Iran and the P5+1 group of world powers – the US, UK, France, China, Russia and Germany, the country will soon face some severe economic sanctions, which will prevent it from selling large quantities of oil, impacting its supply of the world market

There is therefore no doubt that Zimbabwe with a new administration working so hard to improve the country’s economic fortunes, is being negatively impacted by this 50 percent price hike of oil in the past six months.

The increase in oil prices is not only affecting Zimbabwe, but all non-producing oil countries in the developing world.

Despite efforts being made to contain the price hikes, the price of oil is however expected to rise any time soon into the future, as the lack of world investment in the oil sector will not allow any major companies to produce more than the current level, which is around 100 million barrels per day.

  • About the author: Nadia Murte has previously worked with Franck Louvrier when he was in charge of former French president Nicolas Sarkozy’s communication. She was also closely involved in the presidential campaign of current President Emmanuel Macron, by assisting Jean-Yves Le Drian who is now the Minister of Foreign Affairs.

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