Likely Effects of Osama Bin Laden’s Death on World Economy (We hope)

I heard it first on CNN. There’s been a whole lot of rejoicing following the death of Osama Bin Laden, leader of Al-Qaeda. I personally didn’t know how to feel. I was glad – don’t get me wrong – but the sceptic in me asked the ‘now what?’ question. I’m hoping that it isn’t only justice served; I hope it also closes a terrifying era of violence and insecurity. It may even be the beginning of the consumers’ era when the world’s economy is suddenly in our favour.

Cartoon by Universal Press Syndicate 2011

In the mist of media reports and rejoicing, there’s bound to be anticipation that somehow, this man’s death has ended terrorism as we know it. I’ve decided to live in that fantasy world for a few minutes. What if in fact, Osama Bin Laden‘s death ends terrorism or at least the fear and uncertainty that comes with the threat? What will the world’s economy look like? Let me see…
Tourism: This industry saw a huge hit after 9/11. People just didn’t travel as much as they used to. If in fact terrorism is a thing of the past, this industry should benefit from it. Trans-atlantic flights are likely to be more popular and less stressful. The umpteen security checks at airports will reduce considerably and travelling will simply be…more fun. However, it’s naive to ignore the long-term effects of past decline. People may have reorganised their lives and holidays so that air travel, especially long haul flights, are minimal. Reduced travel may have also increased the use of social media and other internet technology for communication in the business world for instance. This is unlikely to revert back to the heavy travel days. As one saying goes, ‘Necessity is the mother of invention’. The rapid growth of globalisation is partially due to the need to work around reduced travel. And let’s not forget the cost implications.
Energy prices: The behaviour of the oil price is a peculiar thing. High prices are driven by doubt and risk. The more politically unstable oil-producing countries are, the higher the oil price. And- you guess it- the greater the profits cartels like OPEC (Organization of the Petroleum Exporting Countries) will make. With Osama’s death, there may indeed be reduced fear of terrorist attacks globally, causing oil prices to drop as has been experienced in the past week. It may also mean that prices at the pump drop too. While this is great news for consumers like us, it ‘s not fantastic news for the oil industry as a whole. If oil and other commodity prices drop, energy prices (utilities) should too. If prices drop, there’s likely to be reduced supply for two reasons:

  1. When prices drop, an industry can become less attractive for many players who may choose to leave or reduce investment in favour of moving to more profitable markets.
  2. OPEC can decide to reduce oil supply of member countries in order to force an increase in the oil price.

According to the Law of supply and demand, reducing supply will drive prices up again if demand surpasses supply. So overall, it’s a vicious cycle. Therefore, decreases in energy and oil prices may be temporal if it happens at all.

A recent article in The Economist titled, ‘Now, kill his dream’ states that Osama’s brand of brutal jihad is losing its appeal in the Arab World. Perhaps this is the case such that the seeming fantasy benefits on world economy could become a reality.

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Comments

  1. Predicting oil prices amidst major world developments that are unpredictable and unstable is like trying to drop a water balloon from the top of the Empire State Building to hit a walking target below. There are so many “unseen forces” at play that I don’t think you can predict with any accuracy what is really going to happen.
    It would be nice, though…..

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    • I see your point.
      However, I think we can safely say that the strongest force on oil prices is political. If governments are turbulent, oil price generally increases. The question, though, is for how long and will something “stronger” come along e.g. an economic crisis that will invalidate all other assumptions? So, I do agree with your comment on “unseen forces”- hard to know but I can dream. Thanks for stopping by :).

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  2. Jeremy Bowen ( who I respect as a journalist who knows the Middle East inside out) noted that terrorism has killed more Muslims than non-Muslims. This is the reason that the Arab world is fed-up with it and justifiably so. I would really like to see Western govts really support the Muslim world rather than treating it as a haven for potential terrorists. Instead of being aggressive and suspicious let them be NICE, big style. (Obama is under pressure to reduce aid to Pakistan. Definitely wrong and short term.)
    There is too much invested in the price of oil, though. It takes a world wide consumer change to counter the political pressures and interests you allude to. But if you are right, and we all drive less, work from home, use the Webster, eat local food in season, reduce our reliance as consumers, then maybe there’ll be just one less bottle of Chateau Lafite-Rothschild at the table. Good post, Kemi.

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  3. Agreed on all counts!
    I hope Obama doesn’t bow to pressure – we need to give the benefit of the doubt just this once.

    You know, a few months ago when pump prices rose in the UK, there were surveys that showed a marked decrease in environmental pollution. A great bonus! It showed that many folks drove less, opting to walk, cycle or use the train instead. This ‘fall’ in demand could lead to a fall in prices too. Too much is hedged on the political stuff. I’m cheering for a Consumer era and away with the political nonsense ;). The economy is an interesting thing.

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  4. yopu wrote: “Osama’s brand of brutal jihad is losing its appeal in the Arab World” – let’s hope so …

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  5. Yeah, let’s hope the blood shed is enough. Thanks for stopping by!

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  6. Interesting thoughts – I hadn’t considered the event in those terms. But I think it makes sense, since the aftermath of the attacks were drops in the stock market, bankrupting of airlines, etc. – all based more on fear than reality. Now if people feel less afraid, will it swing back the other way. Guess we’ll see.

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    • Hi Patti- time will tell how it’ll all pan out, I s’pose but it was good for me to put my own thoughts out there. Thanks for stopping by!

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  7. I’ve read a lot of these Osama bin Laden posts, and this one is one of the most creative and well-written!

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    • Thanks, Hook. These are very uncertain times and I think everyone’s just having a go at speculating. Over half of the hits I’ve received since I posted this are from search engines as people searching for answers on the repercussions of OBL’s death. I hope we all find the answers we want one day soon…. :).

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