Economic boom when oil prices are rising

One of the mostly quoted topic in news papers for last one year has been high price of oil. There has been speculation about different price barrier at different time. At point everyone was talking that $60 per barrel is the limit then $90 came and not it is near $100 per barrel. As the demand in winter in USA will increase it might further go up. There were request from many oil consuming countries to OPEC last month to increase the oil production, these were rejected. Over this period of high oil prices, there has been a period of economic boom (particularly in south-east Asia and middle east). This is very different from the last time when the oil price went up in 70s. This time it seems that economy does not care much about the oil prices. Though the input cost for raw material and energy is increasing everyday but companies are generating heavy profit every quarter. In fact economic boom has gone to an extent when companies are actively seeking in very large sized merger and acquisition. Though economist will try to give many answers to this. I have my views. One of the major force behind these, as I understand, is the globalization. This has changed the whole business and economics environment. Now we source all the inputs for business where they are cheaper. We source money from where it is cheap, send manufacturing work where labour is cheap, send design and r&D work where educated labour is cheap. Combination of all this makes a balance. So today even if oil prices go up, other inputs can be found cheaper somewhere in the world and that helps in reducing in the overall cost. The other issue when the money goes to oil rich countries, they also invest it somewhere. One of the place to invest in the past was US treasury bonds for most of the countries. But now the situation is changing and countries are looking for other places to invest money and get higher returns. A large proportion of this money is going to south-east Asia. Oil rich countries are generally very much interested in investing real estate projects. Many of the big real estate project in countries like India, Singapore, Korea etc are being funded by these oil rich countries through foreign investment. to manage this huge amount of money, almost all the banks are opening branches in the middle east and managing money in the form of private equities. So in a sense, money that goes to oil rich countries is going back to the countries where money is needed more. When money is available in excess oil prices are not big concern. And top of all this, economy has gone to such an extent where the higher prices of inputs can be transferred to the consumers. Consumers demand high salary from their employers next year. No problem, it will be done. Everyone is playing with huge money. Though I don’t know it is sustainable growth or not. Neither do I know how big income gap it is creating between poor and rich. But in near future this economic growth doesn’t seems to stop. Recently USA has published a report saying that Iran has no more nuclear weapon program since 2003, it may ease tension and in turn oil prices. Effect of this economic boom is more visible in the share market of south east Asia. Petro China has become one of the largest oil company in the world (in terms of market capitalization). Though share market is a illusion and has gone to a level where it seems that most of the companies don’t have fair value. But I am hearing this for more than a year. I sold some shares last year and now I feel pity on me. Share prices have gone even higher where they were last year. Indian share market has risen almost 3 times in last 3 years. One might have made huge money if this was known, some of the shares are at 10 times of where they were 3 years back. Though share market is not a real indicator of economy, but to a large extent it tell the confidence of the investors in the economy and it can be inferred that this economic boom is there to stay.