A critical part of the US economy is its oil and gas industry. It contributes a lot of jobs and towards the GDP of the US. The extraction of natural gas and oil from shales reduced overall imports and contributed positively to the economy in the forms of investment, growth, and jobs, but it cannot be denied that several factors associated with Petroleum products and the Oil industry can pose a threat to the US economy.
In 2015, the total employment impact of the Oil Industry amounted to around 5.6% of the total US employment, contributing directly or indirectly to about 8.1 million part-time or full-time jobs (PWC). It generated about 1.1 trillion dollars of revenue to the national economy in 2015 and bought a 220 billion dollars capital investment (PWC). Oil prices also affect costs of manufacturing and production in the US. There is a direct correlation between goods transportation prices and travel fares with gasoline and fuel prices (Andrew Tipping).
US vulnerability to changes in oil demand and supply became evident in 1973 when different external economic and political factors impacted the economy. As OPEC placed an oil embargo on oil sales to the US for a few months, the oil prices sharply rose and led to high inflation and stagnation in the US economy (Corbett). Although the oil-driven inflation has lessened in its impact with more flexible demand and supply conditions, higher oil prices can still reduce demand for other goods and services as they reduce overall wealth and create an uncertainty in the market regarding the future (Sill).
The currency exchange and flow also have a two-way direct relationship to the oil prices because of US dependence. Increasing currency outflow leads to weakening of the currency (FXCM), and the United States is a major oil importer, leads to major currency outflows. Oil imports have previously led to as much as 40% of the US foreign trade deficit (Richardson).
Reliance on non-renewable energy sources like Petroleum and gas has a large impact on the economy, but the diverse nature of the US economy allows it to take a few hits and keep going since multiple sectors contribute to it (Beattie). Other OPEC nations like Venezuela or Russia’s fortunes are more dependent on the prices, more than the United States due to not only a greater economic reliance but less diversification as well. Nonetheless, the US must move towards renewable energy sources to address the impact that Petroleum consumption is having.
Andrew Tipping, Andrew Schmahl, Fred Duiven. The Impact of Reduced Oil Prices on the Transportation Sector. 19 February 2015. 20 March 2018. <https://www.strategy-business.com/article/00312?gko=ae404>.
Beattie, Andrew. How Oil Prices Impact the U.S. Economy. 11 January 2018. 20 March 2018. <https://www.investopedia.com/articles/investing/032515/how-oil-prices-impact-us-economy.asp>.
Corbett, Michael. Oil Shock of 1973–74. 22 November 2013. 20 March 2018. <https://www.federalreservehistory.org/essays/oil_shock_of_1973_74>.
FXCM. How Does The Price Of Oil Affect The US Economy? 2015. 20 March 2018. <https://www.fxcm.com/insights/how-does-the-price-of-oil-affect-the-u-s-economy/>.
PWC. “Impacts of the Natural Gas and Oil Industry on the US Economy in 2015.” 2017. <http://www.api.org/~/media/Files/Policy/Jobs/Oil-and-Gas-2015-Economic-Impacts-Final-Cover-07-17-2017.pdf>.
Richardson, Jake. Renewable Energy Has Many Benefits For People, The Economy, & The Environment. 11 January 2018. 20 March 2018. <https://cleantechnica.com/2018/01/11/renewable-energy-benefits-people-environment/>.
Sill, Keith. “The Macroeconomics of Oil Shocks.” Business Review Q1 2007: 21-31. <https://www.philadelphiafed.org/-/media/research-and-data/publications/business-review/2007/q1/br_q1-2007-3_oil-shocks.pdf?la=en>.