Gas is an important productive resource in the world. Driving cars, heating buildings, producing electricity, people all need gas. Therefore, gas is directly related to people’s normal life and the global economy. Recently, due to the fights between Israel and the Hezbollah guerrilla, the Middle East political and economic situation has been deteriorating, which has led to the continuous hikes of gas prices. Since gas plays an important role in our economy, people should understand that the high gas price does not only mean people need to pay more for driving their cars, but it also leads the pervasive inflation, the change of people’s consumption habits, and more seriously, the recession of the global economy.
First of all, the rising prices of gas, a critical input in almost all production processes, will trigger the price hikes of most consumer and industry products: the inflation. For example, after the gas price increases, the costs of transportations also increase. Raw materials need to be transported into factories before they become final products; all final products need to be transported to retail stores where consumers can buy them. Therefore, the increasing costs of transportation will directly be added in the prices of consumer products. Moreover, the high gas prices generally are led by the high crude oil prices, and the crude oil is the raw material of most important chemical products such as nylon and synthetic polymers, which are inputs of most industry products. Consequently, the hike of the crude oil price also leads the rises of the industry product prices. The pervasive inflation is inevitable.
Influenced by the inflation caused by the high gas prices, people’s consumption habits will gradually change. With the rising gas prices, people will reduce the times of long-distance travel by driving their cars, and they will more rely on public transportation systems such as the metro and the bus to commute between their working sites and their homes. If the hikes of gas prices continue, people will stop buying luxurious and gas-consuming Sport Utilities Vehicles: a type of passenger vehicle which combines the load-hauling and versatility of a pickup truck with the passenger-carrying space of a van or station wagon, and they will even buy more compact and economical cars to retire their SUVs already owned. Moreover, facing more expensive hydro bills at homes, people will change their electrical appliances to more energy-efficient ones and renew their insulation of their house to keep their house warm in the winter. More dramatically, people will opt to live in urban areas which are near their working places to reduce their commute distances to save gas.
The most serious impact of high gas prices is the global recession, which was proved by the history in 1970s. The hikes of gas prices will lead chain effects and vicious economic cycles. First, the high gas prices will lead the pervasive inflation in the global economy. Facing the continuous rising prices of consumer products, people will consume less and demand high salaries. However, due to the rising prices of raw materials and worker’s salaries, entrepreneurs will reduce their production capacities and even layoff their employees. With more people unemployed, demands will decrease even more, so will the supplies. Finally, the global economy will step down unhealthy cycles. The political and economic situation in the world will become turbulent. This is what exactly happened in 1970s after OPEC increased the crude oil price artificially.
In general, the skyrocketing of gas prices is not an isolated event. It will directly influence people’s normal life and global economy in ways of inducing inflation, altering people’s consumption habits, and making the global economy slipping into deep recession. For the interests of human beings, the international communities should immediately intervene in the conflict between Israel and the Hezbollah guerrilla and force them to reach a peace treaty. The peace of Middle East will eventually lead the cool down of gas prices.