American Businesses and Dependence on Foreign Oil, Research Paper Example
Words: 2790Research Paper
OPEC is known as the Organization of Petroleum Exporting Countries who is responsible for the prices of crude oil. OPEC’s primary objective is to manage and integrate petroleum procedures between the member countries, in order to set stable oil prices for domestic producers. The oil prices are going down every week causing consumers to spend more, travel more, and find activities for the disposable income because gas is low. However, in truth both lowering and raising oil prices by OPECaffect businesses negatively in America and around the world. American reliance on OPEC oil influences businesses globally.
Overview of the Situation
The Organization of the Petroleum Exporting Countries (OPEC) is global governmental organization that consists of 12 oil producing and exporting countries that control the world’s oil supply. The Organization of Petroleum Exporting Countries(2012), indicates the members of the OPEC are” Algeria, Angola, Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela”. The United States contributes the global business complications because we are one the number one consumers of oil. In an article by Restuccia (2012), found” the United States use over 18 million barrels of oil per day. This level of consumption is the highest in the world.” This means the United States business are severely affected when OPEC delays the delivery of oil to the world. OPEC plays an important part in affecting the Unites States businesses negatively or positively because OPEC has the power to cause global recessions. The oil resources from OPEC have fuel the United States’to countriesthat has all the comforts of the 20th century. However, the United States has allows the OPEC monopoly to impact business in the United States and internationally.
The United States has become dependent on foreign regimes to bolster our own infrastructures and energy needs. However, the building of more homes, suburbs and over use of oil has locked America into long-term dependence on the oil from abroad. Regardless of the origin of the oil, the United States is a country that is dependent on oil. To put in simple terms to understand, the United States consumes more oil than Africa, The Middle East, and Central and South America combined. The United States consumes massive amounts of oil; therefore, any delay of crude from foreign regimes to the United States has global business complications.
The primary issue is OPEC has a history of fluctuating oil prices to stimulate economies nevertheless;they historically they raise and lower prices causing a major oil crisis. This monopolistic organization determines policy while making decisions to focus on the complex nature of balancing low and high prices. The leaders of OPEC are best describe as a cartel that can start an embargo to reduce the overall supply. This is a deliberate effort by the OPEC to control the United States energy needs by fluctuating prices during global economic crisis.
OPEC has their own agenda when raising the price of petroleum oil, which has a major impact on businesses worldwide. The businesses in the United States thrive when the oil prices are low because consumers spend more money on travel, they spend money on hotels, the spend money on vacations and they buy more goods and services.The cheaper fuel has many benefits such as easing the pressures of inflation and it helps the Federal Reserve not raise interest rates while steadying the economy. However, with lower demand for crude oil lowers the demands for steel which can lay off thousands of steel workers.
The primary problem is OPEC has a reputation for causing price wars that is designed to protect their own market. As result, OPEC puts oil businesses out of business in North Dakota and Texas. According to Weissman (2014) businesses rely on the consumers to spend disposable income, however, just the mention of OPEC raises oil prices to hurt American drilling for oil and hurts US business because consumer spending stops. The OPEC plan to slow down US drilling has may back fire because the American economy may suffer from OPEC actions by drilling and selling less oil, however, it balances out with consumers spending more money in the economy because they can fill up their cars. (Weissman 2). The primary point is OPEC calculated fluctuations from lower and high oil prices negativelyaffect businesses in the United States and abroad.
The OPEC can affect the airlines business because the higher gas prices affect the consumer’s ability to travel and the airlines ability to provide lower fares. There is an abundance of United States businesses that depend on the airlines to be lucrative such airport maintenance workers, avionics jobs, airline flight attendant, flight dispatcher, airline pilots, security workforce, restaurant, and chauffeurs and limo services. It is apparent that OPEC has a major impact on businesses because they make decision to fluctuate prices. However, buyer beware the price of crude oil has dropped has to new all-time lows from $100 to less than $50. The United States may be experiencing lower gas prices but the lower gas prices can cause negative problems because of the downward spiral of crude oil prices. The consumer spending normally can offset the negative impact of fluctuation prices however; many industries do not recover from the fluctuations such as the steel industry. (See below)
The US business manufacturers are preparing for the drop in oil prices because the plummeting prices of crude oil prices compel energy manufacturers to delay new drilling ventures or stop drilling jobs(Gallucci 1). The banks are impacted because they extend enormous amounts of financing in hopes that the projects will bring back lofty returns. However, when the businesses pull out of large projects, the banking industry suffers which is passed on to the consumer because interest rates for the bank will be raised. The plummeting prices affect other businesses such as the steelmakers and local banks that provide the financing to complete the drilling projects. This is example of how Americans enjoy the lower energy bills, however, the negative impact is employees are laid off jobs because the reduce demand for steel products. In US Steel Corporation in Lorain, Ohio has public announced that they will lay off over 614 employees because of the plummeting oil prices which diminishes the demand for steel products. In addition, the erratic prices of oil can cause a US recession (Gallucci).
The lower prices for crude oil actually damage the United States economy and US manufacturer growth. There are good benefits and bad benefits of lower prices such as the factories using oil can save money, which the savings is passed on to the consumer who can spend for goods and services. In retrospect, the largecutbacks of US oil development such as steel makers causing massive job losses. In laymen’s terms, the United States businesses are impacted because the oil fluctuations slashes into the exports profits by US manufacturers who face stiffer competition in the foreign markets. The United States consistentlyenters into years of recessions because they depend on foreign countries to provide energy needs for the country. The OPEC monopoly takes advantage of the power over global economics by purposely raising and lowers oil prices for global power and control. If American put tax dollars towards alternative energy, America could easily lessen our need for foreign oil resources.
Environmental and Transportation
In the argument that low oil prices makes, the economy stable with encouraging consumer spending is good for a down economy. The American household saves money because they arenot spending all their money at the pumps. The families will take more vacations because the gas prices are low for transportation travel. It was estimated that the average family will double their disposable income because of lower oil prices and will save over $3000 per year (Cardell &Schwartz 1). There are other countries primary mode of transportation is bikes or public transportations, which helps the air in that region, howeverautomobiles cause the United States pollution. One hand, the economy thrives and business are making money because of the disposable income however, over the long run the business suffer because OPEC will raise the gas prices so high that American businesses suffer.
Conversely, the environmental impact of OPEC lower oil prices is causing more pollution and destruction of clean air and the ozone’s layers. The transportation industry is the number one source of pollution in the United States. According to Union of Concerned Scientists (2014), transportation contributes the majority of carbon monoxide and nitrogen oxides into the atmosphere including hydrocarbons mixed with the air. The United States is the leading nation that dominates transportation with automobiles as the primary choice of commuting. There are other negative effects on businesses when the OPEC raises the prices.
The small business are the center-stone of the United States economy, the rise in gas prices cause consumers to spend less which generates less income for businesses. The businesses pay important taxes in our communities that allow fixing of the streets, improving the police departments, and provide additional support to the city and state resources. However, there other countries that have businessesthat remains profitable because their primary modes of local transportation are walking, bicycles, or public transportation.
The effects are devastating because the lower prices of oil actually help destroy the air with pollutions. According to BicycleUniverse.Info (2012):
- It is estimated that from emissions over 30,000 die each year in United States
- The majority of American people live in cities that do not meet air quality standards and over 1/3 of Americans live in cities that almost never pass quality standards.
- The ozone is destroyed from automobile pollutions which consist of nitrogen oxides and dangerous hydrocarbons which major ingredients of smog
Americans Reliance on OPEC
The United States demands drives up oil prices on the global market, which often benefits oil-producing nations that do not sell to us. The bottom line is the United States will always be dependent on OPEC until we solidify alternative energy options. Further, the regimes and elites that economically benefit from rich energy resources rarely share oil revenues with their people, who worsen economic disparity in the countries and at times creates resource-driven tension and crises. Here are some facts about the United States dependence on foreign oil and statistics present by U.S. Energy Information Administration (2012):
- The United States has 22% of all imports oil products come from OPEC. Other crude oil imports from Canada
- The United States consumes over 15 million barrels per day (MMbd) of petroleum products. USA is the number one petroleum consumer
- The United States imported over 12MMbd of crude oil in 2011 and exported over 3.0MMbd of crude oil
OPEC Impact on US
OPEC impact on the United States economy is evident because we consumed oil in so many ways such as toothpaste, paint, plastics, insulations, cars, plans, and buses. American’s have come to depend on oil and coal too much. Oil and gas account for a major portion of Americans energy consumption and are critical to future energy generations. The time has come to find alternative energy solutions because the future looks bleak when OPEC can decide to limited the number ofbarrels they produce causing global business meltdown. The ripple effect of the OPEC fluctuations
The United States does not have a choice other than depending on OPEC for crude because our oil demand is so massive that any disruption of oil flows crashes the global marketplace. The United States is a major contributor to the global demand for oil the United States who is paying the price to finance and sustain unfriendly regimes. The Americans have become dependent on our cars to get gas whenever we choose and for low prices. Our necessities of life are getting from work to home without worrying about how much as we use. We all remember that before gas prices hit the three-dollar mark, we were not concerned about where the oil came from or what price the United States would have to pay in the future. As long as the oil was flowing from other foreign countries, the US has no problems and slept very well.
Today, the demand for oil is so high that domestic demands cannot keep up with the production. As a nation, we are now forced to seek oil from foreign countries even though, we have sources on the United States soil, but we never developed those opportunities. The problem is the foreign oil prices are being driven so high because of a poor economy that the price per barrel has exploded upwards. With the dramatic rise in gas prices, the American people have started to change habits in order to save some money to live. You can all the businesses make cuts and adjustment in order to keep a workforce. The depended on foreign oil has change our lives forever. The bottom line is the United States needs to keep us competitive in the market while developing innovative and affordable energy options. We have become very comfortable letting oils drill the oil while selling the oil to Americans and the world at expensive profit margins. The best way to break this dependence is using new energy alternatives. The United States has spent billions of dollars on purchasing oil however, there are some positive changes. In 2010, Edding(2013), that America use of alternative energy has caused a decline in the consumption of oil reported it. It appears that some of the alternative solutions are starting to make a difference.
The United States need to spend more of the budget to explore natural energy solution to replace the dependence on crude oil. The OPEC cartel or monopoly only serves their own agendas regardless of the impact on the United States and the rest of the world. The private and public funding should find creative solutions to energy for the new millennium. The United States needs to become the leader again combining public and private funding research to ensure innovate solutions such as solar energy, natural gas, and wind solutions are explored. The government needs to pass laws that make Republicans and Democrats because collaborative partners invested towards the energy needs of the United States.
The United States needs to finance all drilling for oil by the United States as a number one priority that is earmarked in Congress each year. The primary change is the dependence of United States on oil products such as transportation, which remains the reason the OPEC cartel, has so much control over the world’s economies. The United States need to burst into the new technology era with other solutions such as hydrogen cell automobiles. In addition, to utilizing the brain trust in the United States to create a new type of derivatives and properties of crude oil. The alternatives to oil need to priority such as ethanol and battered operated cars. Finally, the United States needs to team with allies to continue to drill in the United States to gain control of the homeland oil plus alternatives will dethroned the OPEC cartel because of new alternatives. It is imperative that the United States spend tax dollars developing offshore drilling and drilling in the United States while seeking alternative energy choices.
The urgent need has come for American to make long-term investments in new energy resources because as long as we depend on the OPEC for energy American will never self-maintained energy resources. If American decided to invest billions into the alternative energy resources, the other countries would follow the lead. The alternative energy resources have gained steam in the United States but more public and private funding is needed to overcome the reliance on OPEC oil. The action of pursing other alternative resources will take some of the power away from OPEC. The country is already a trillion dollars in debt therefore; any solution is as good as the past ideas. American needs to get back to being a powerful nation that leads the energy charge into the future.
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Cardell, Diane& Schwartz, Nelson.” Lower oil prices provide benefits to US workers. The New York Times. Jan 2015. Web 18 Jan 2015
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Galluci, Maria.”US manufacturers are bracing for impact of oil price plunge as energy companies scale back crude production. “International Business Times. Jan 2013. Web. 18 Jan 2015.
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Weissman, Jordan.” Dont fear an oil bust.”MoneyBox, 05 Dec 2015. Web Jan, 2015.> http://www.slate.com/articles/business/moneybox/2014/12/falling_oil_prices_why_an_oil_bust_won_t_hurt_the_american_economy_or_energy.html>
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