Wheat Vs Oil: How High Commodity Prices Create Global Instability
If 2011 is seen as the year of continued revolt, there are two reasons why this could spread beyond the borders of the Middle East- High wheat and oil prices.
Why does increasing wheat and oil prices create social instability? The Western World needs the energy to fuel its cars, factories and farms, but the Middle East, -where most of this oil comes from-needs the wheat these continents produce and export.
This is seen as a dual benefit to both the Middle East, Europe and the United States.
One problem is that there is evidence that this two-tier trade system is breaking down, because since the early 2000's, both oil and wheat prices have increased.
Since the invasion of Iraq, in 2002, the actual price of petrol has risen sharply, whilst current wheat prices have soared by 50% in 2011.
What is the relationship between this continuing trend, and what are the consequences? Middle Eastern governments provide subsidized wheat to their populations, who are the Worlds biggest consumers of bread.
But as wheat prices increase, the cost of these subsides rise, and led to higher bread prices in the Middle East.
This was the main reason protesters took to the streets of Cairo in early 2011, because the staple for many people was becoming unaffordable, and hunger breeds anger.
An anger that led to the success of the Egyptian revolution.
Europe and the United States import more oil than they can produce, and depend heavily on this continued supply of oil to fuel everything from the cars people drive to work in, to the machines that grow the wheat crops.
This has pushed up food production costs, but a series of natural disasters in the US, and a continuing eroding agricultural land area, leads to less wheat being produced by these countries.
Naturally, a nation only exports food, when it is able to supply its own people first, so wheat exports from these regions are declining.
Raising food prices, and cutting into the GDP of oil producing countries, as they pay more for the wheat they import.
The consequences are two-fold, oil flows to the west, but as the value of the dollar declines, prices have to rise to compensate for any losses in exchange rates, which are then passed onto the consumer at the petrol pump.
Add in the increasing cost of food in both Europe and the United States, consumers spend more on basics, and have less money to spend on life's extras like consumer goods.
So low income families are becoming poorer, compared to a generation ago, and the economic recovery slows.
Higher food and petrol prices, affect both families in the West,, and the Middle East.
And as we see on our television screens breeds resentment, that can lead to unrest, and ultimately revolt.
One reason why the relationship between wheat and oil prices, can either be beneficial as in the 1990's or detrimental to the health and wealth of all our nations.
The question is, how can this cycle change to stabilize global oil prices, and produce an abundance of cheaper wheat, in the future?
Why does increasing wheat and oil prices create social instability? The Western World needs the energy to fuel its cars, factories and farms, but the Middle East, -where most of this oil comes from-needs the wheat these continents produce and export.
This is seen as a dual benefit to both the Middle East, Europe and the United States.
One problem is that there is evidence that this two-tier trade system is breaking down, because since the early 2000's, both oil and wheat prices have increased.
Since the invasion of Iraq, in 2002, the actual price of petrol has risen sharply, whilst current wheat prices have soared by 50% in 2011.
What is the relationship between this continuing trend, and what are the consequences? Middle Eastern governments provide subsidized wheat to their populations, who are the Worlds biggest consumers of bread.
But as wheat prices increase, the cost of these subsides rise, and led to higher bread prices in the Middle East.
This was the main reason protesters took to the streets of Cairo in early 2011, because the staple for many people was becoming unaffordable, and hunger breeds anger.
An anger that led to the success of the Egyptian revolution.
Europe and the United States import more oil than they can produce, and depend heavily on this continued supply of oil to fuel everything from the cars people drive to work in, to the machines that grow the wheat crops.
This has pushed up food production costs, but a series of natural disasters in the US, and a continuing eroding agricultural land area, leads to less wheat being produced by these countries.
Naturally, a nation only exports food, when it is able to supply its own people first, so wheat exports from these regions are declining.
Raising food prices, and cutting into the GDP of oil producing countries, as they pay more for the wheat they import.
The consequences are two-fold, oil flows to the west, but as the value of the dollar declines, prices have to rise to compensate for any losses in exchange rates, which are then passed onto the consumer at the petrol pump.
Add in the increasing cost of food in both Europe and the United States, consumers spend more on basics, and have less money to spend on life's extras like consumer goods.
So low income families are becoming poorer, compared to a generation ago, and the economic recovery slows.
Higher food and petrol prices, affect both families in the West,, and the Middle East.
And as we see on our television screens breeds resentment, that can lead to unrest, and ultimately revolt.
One reason why the relationship between wheat and oil prices, can either be beneficial as in the 1990's or detrimental to the health and wealth of all our nations.
The question is, how can this cycle change to stabilize global oil prices, and produce an abundance of cheaper wheat, in the future?