Higher oil prices: putting the consequences into perspective

Sharp rise in oil prices

The war in the Middle East has caused the price of crude oil to rise by around 80% in just a few months The blue bars in the figure below show that the price of oil also rose sharply during previous geopolitical events, for example during the two oil crises of the 1970s and following the Russian invasion of Ukraine in 2022.

Supply shock

The recent rise in oil prices is a supply shock, similar to the situation in the 1970s. The current shock has been caused by the blockade of the Strait of Hormuz and damage to energy production facilities in the Middle East.

Both prices and wages have increased

We need to look at the rise in prices of all goods and services since the 1970s in order to properly compare the current oil shock and its impact on households and businesses with the impact from previous shocks. Fifty years ago, an oil price of, say, forty dollars a barrel had a greater economic impact than it does today.

Another difference: the Netherlands is now less dependent on oil

Since the early 1970s, the Netherlands has become around 70% less dependent on oil as an energy source for the production of goods and services; see also the yellow bars in the figure. This is due to more efficient production processes in companies, the emergence of alternative energy sources and the drive towards sustainability. This is another reason why rising oil prices affect the country less severely today.

Risks remain

Example: a transport company that relies on diesel feels the impact of rising oil prices immediately. The higher costs are often passed on to customers. So there are certainly concerns: oil supplies are uncertain, prices may continue to fluctuate, and not everyone can easily switch to a different energy source.

What does this mean for households and businesses?

The impact is less severe than it used to be, but it is certainly still noticeable:

• Fuel and transport are becoming more expensive
• The prices of products may rise
• In many cases, companies will pass on higher costs
• Energy-intensive sectors, in particular, remain vulnerable.

Uncertainty about the consequences

The price of oil is rising sharply due to geopolitical tensions, but the impact on the economy is less severe than in previous oil crises. Due to the uncertainty, DNB is using various scenarios to assess the economic impact of high oil prices.