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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