As the credit markets froze Northern Rock requested the Bank of
England, as lender of last resort in the UK, for a liquidity support facility
due to problems in raising funds in the money markets. This created a run on
the bank as depositors lost all confidence in the bank leading to queues
developing across the nation as depositors withdrew their cash in panic. The
British government took the controversial decision to nationalise Northern Rock
as its collapse would have inevitably spread to other banks as panic stricken
depositors attempted to withdraw their savings ‐ the whole banking sector
would have collapsed. A similar scenario occurred in March 2008 with Bear
Stearns one of the world’s largest investment banks as it was forced to write‐off
three of its investment funds in the sub‐prime market. Bear Stearns's
problems escalated when rumors spread about its liquidity crisis which in turn
eroded investor confidence in the firm. With the housing sector the driving
engine for the US economy for the last decade; its collapse will have severe
repercussions across the global economy as much of the world’s banks placed
their money through complex securitisation in the sub‐prime market.
With the US economy considered already in recession this will have
world wide affects as the US economy drives the world economy due its huge
consumption. Oil: The Crude Facts The US administration threw billions of
dollars at its banking industry who suffered huge losses due to the housing
market crash. As the credit crunch has matured most banks to shore up their
losses moved into commodities. The price of oil crossed the $100 a barrel Mark
in January 2008 – the highest since oil was first discovered over 100 years
ago. The importance the black stuff plays in the modern economy is so crucial
that slight changes in prices can affect economies. Today oil is used for
numerous everyday products across the world, most commonly for powering
combustion engines such as fuel oil, diesel oil and petrol. Oil is also used as
fuel for heating and lighting (e.g. kerosene lamp).
The petrochemicals industry produces many by‐products such
as plastics and lubricants. It also manufacturers solvents (alcohols) through
oil, without which there would be no chemicals industry. The free flowing
hydrocarbons allow many farming techniques and fertilizers. Hence small shifts
in the price of oil have far reaching consequences. The fact oil prices shot
through the roof at the same time the credit crunch matured has been publicly
kept separate otherwise this would mean the housing bubble has been replaced by
the commodities bubble. Oil Past and Present It was British naval power that
brought Oil to the international scene. In 1882, Oil had little commercial
interest. The development of the internal combustion engine had not yet
revolutionised world industry. With Germany on the verge of shifting the global
balance of power by developing its own oil propelled ship Britain began
converting its naval fleet from bulky coal‐fired propulsion to the new
oil fuel. WW1 brought to the international scene the importance of oil; it came
to be seen globally as the key to military success. In an age of air warfare,
mobile tank warfare, and naval warfare bulky coal‐fired propulsion gave
way to oil.
Oil required only 30 minutes for ships to reach top speed compared
to 4‐9 hours when coal was used, battleships powered by coal emitted
smoke which could be visible 10 kilometres away whilst oil had no tell‐tale
signs. The strategic advantage it gave was insurmountable and the British
empires control of oil supplies become even more important given the fact that
Great Britain had no oil supplies at the time. It was the capturing of the rich
oil fields of Baku on the Caspian Sea denying vital supplies to Germany that
resulted in the end of WW1 and German surrender. William Engdahl geopolitical
expert outlined the importance of oil ‘rarely discussed, however is the fact
that the strategic geopolitical objectives of Britain well before 1914 included
not merely the crushing defeat of Germany, but, through the conquest of war,
the securing of unchallenged British control over the precious resource which
by 1919, had proved itself as a strategic raw material of future economic
development – petroleum. This was part of the ‘great game’ – the creation of a
new global empire, whose hegemony would be unchallenged for the rest of the
century, a British – led new world order.’ Britain and France concluded a
secret oil bargain (Sykes–Picot agreement) agreeing in effect to monopolise the
whole future output of Middle Eastern oil between them. Oil Markets Crude oil,
also known as petroleum, is the world's most actively traded commodity. The
largest markets are in London, New York and Singapore but crude oil and refined
products ‐ such as gasoline (petrol) and heating oil ‐ are bought
and sold all over the world.
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