Try asking an economist, or even an economics teacher or student, “Which is the single most important commodity in the world? A commodity that has an impact on the whole planet?” Their response almost always will be, “Crude Oil.” Normally, when the price of a commodity goes up (whether from shortages in supply or increased demand), the consequences of that are (largely) limited to its sector or the other few sectors it fuels (if any). But primary commodities are different. These are the first step to the production and consumption of all secondary and tertiary products. Therefore, not only are primary commodities price volatile and has negligible price elasticity but they are
also extremely essential in driving the supply of many more other goods. For example, an increase in wood will drive up the costs of building houses (assuming that is the norm- like in the US), furniture, and even small commodities like pencils. Hence, primary goods have an impact on multiple sectors- making it a macro issue rather than a micro one. Crude oil is one of the most essential primary commodities. Meaning, it is inherently price inelastic. But on top of that it is also mostly concentrated in only a few nations, all of which make up the OPEC (Oil and Petroleum Exporting Countries). OPEC not only has the power to set international oil prices but also limit its supply if necessary. Crude oil is perhaps one of
the very few, if not only, commodities that can send the whole world into a stagflation. Something very similar to this took place in the 1970s (and continued into the 80s), when the OPEC decided to limit the supply of Oil. This skyrocketed the prices overnight and sent the world into supply shock. People woke up to an increase in almost every single commodity. This was because if oil was not directly involved in production, then it was required for transportation. This increased costs of production for multiple sectors across the world economy. That particular time period was the classic example that is still used to criticize the classical model of aggregate supply, and demand (long-term and short-term). This was the time that
the true gravity of the concentration of power in the hands of a carter (multiple countries legally acting as a monopoly), became truly visible. Hence, every single time you order food to your house, or start the engine of your vehicle, or do anything else- ask yourself, “Could I do this tomorrow if the oil prices skyrocketed?”