How will Middle Eastern unrest impact the US economy? http://morganisteconomics.blogspot.com/ Initially when I saw the situation in the Middle East unravel starting with Tunisia I thought that it was an indication of the shrinking power of the American government. The reason for this thinking was based on the common view that most Middle Eastern governments are puppet governments set up by the United States. Therefore if the governments were being deposed it was a sign that the power and influence of the United States was dwindling. This assumption is partly based on the way that the Roman Empire fell gradually losing the outside satellite regions to barbarian hoards. In the same way the retraction of American influence in the Middle East sparked the idea that the whole of the global American empire was under threat. I now after deeper thought and economic analysis believe that this view of the current situation is wrong and that the conflict and revolutions in the Middle East will serve America or at least the American government very well in the current economic climate. The reason for this is simple it is the key economic advantage that America has had over the rest of the world for a very long time and has probably caused more bloodshed than people are even aware of. This advantage is oil, not so much the commodity itself but how it is traded. When oil is purchased it is purchased in dollars, American dollars to be exact, so whoever buys the oil has to buy dollars first to do so. This means that the price of oil relates very strongly to the price of the dollar and in turn creates an artificial value to the currency that no other currency in the world is endowed with. When the price of oil rises, the number of dollars purchased will also rise, which in turn increases the relative purchasing power of the American currency against all other currencies in the world. Americans can therefore afford to buy a lot more goods or the same amount with less money than other consumers across the world. Due to the unrest in the Middle East the oil price has risen and is likely to rise again. Although this means that there is a detrimental impact on Americaâs oil supply the benefits of the general purchasing power of the currency more than out way the negatives. Additionally the countries that are supplied by the main oil producing country that is currently unstable, namely Libya, are mainly European or BRIC members. In short the majority of the impact of the oil constraints caused by the Middle Eastern unrest is absorbed by American competitors. Further to that, even if the impact of the oil supply shortage was evenly distributed the consequences to the growing BRIC countries in particular China would be far more damaging than it would be for the US. Chinaâs developing economy is dependent on oil to expand and although oil price rises would hamper American growth too, it is already developed enough to provide high end and infrastructural support needed to enable production. China would have to invest heavily on the capital goods and infrastructure facilities required to compete with the developed world if it intended to maintain its current rate of growth. Therefore regardless of the currency value advantages of rising oil prices for the American economy the detrimental ramifications to its competitors that the current Middle Eastern unrest creates is vastly in its favour too. The political state of these Middle Eastern countries is under debate and the intervention of foreign organisations is also currently discussed. It is my opinion that the Americans would benefit greatly if there is widespread unrest in the Middle East and could do better if there is no government at all in the region, or perhaps weak governments that collapse regularly creating oil supply shocks which damage their competitors. It is however not in the interests of the EU or the BRIC countries if they wish to compete with the Americans. Therefore it is my prediction that the EU will go to great lengths to resolve the situation in the Middle East and China may offer financial support, but America will unlikely be willing to intervene effectively.