News of the oil price rising or falling is often met with a wave of reaction and analysis. The recent headline ‘Oil is the new Greece’ illustrates how seriously price fluctuations are taken.

While petrol prices might be the obvious way oil prices affect consumers, there are many more implications.

Every aspect of our modern globalised world economy is run on oil, and an increase in the price of crude oil is acutely felt across all parts of society.

There are many reasons why oil prices can increase including geopolitical tensions. Another reason is more demand from China and America.

Reduced demand from Europe can also push prices up.

The Organisation of the Petroleum Exporting Countries (OPEC), an oil cartel, has the power to stop production in order to decrease the numbers of barrel produced if the price of the barrel drops below its target. As basic economics dictates, this has the effect of pushing up the price of oil again as demand stays the same or increases.

As oil prices look set to remain high for the foreseeable future, we consider the far-reaching consequences.

Petrol prices: as we have already mentioned, this is the obvious one. As the price of the barrel goes up, so will how much you have to shell out at the petrol pump.

Given the typical relationship between petrol price and the price of crude oil, a price hike of $150 a barrel could mean you are left paying anywhere between £1.34 to £1.50 per litre. This is bad news for both inflation and consumer confidence.

Inflation: if the buying power of the pound decreases, economic growth dampens. This is because as you need more money to pay for the same basket of goods, households and businesses alike experience a squeeze on their spending which then hampers economic activity. This is exactly the opposite of what a sluggish economy needs during a recession and there is always the risk of persistently high inflation.

High inflation also makes it harder for the Bank of England to support and boost economic growth through low interest rates. As the Bank struggles to reduce inflation, it will continue to support economic growth with more ‘policy easing’ – like recent bouts of Quantitative Easing, where more money came into circulation, effectively decreasing the value of the pound and savers’ pots.

Savers will know too well that if inflation remains high the ‘real value’ of their savings pots fall. Currently, the base rate is 0.5% but inflation is running at the 2.7% mark. Very few savings accounts are beating inflation at the moment, so the corrosive effects of inflation is more than dangerous for those looking to squirrel money away for a special reason.

Energy bills: the price of energy tends to mirror the price of oil. This winter just about every energy supplier hiked up prices, some as high as 10.7%, adding over £1,650 to some household bills. The companies all stated that the hikes were due to ‘increased operational costs’, which means that any increases they suffered to the production of their energy, they passed onto the homes of the UK.

Higher food prices: food prices are particularly sensitive to hikes in the price of oil. According to the Institute of Economic Affairs, this is not just due to transport costs. In the case of food, petroleum costs make up a very high proportion of the final cost because of the dependence of modern agriculture on oil-based fertiliser and pesticide.

The emergence of bio-fuels means that higher oil prices have tended to exert upward pressure on agricultural commodity prices.

Also, a significant proportion of the cost of food is distribution, fuel for farm vehicles and petro-chemicals. So, higher agricultural prices typically mean higher food prices in household shopping baskets.

Businesses: while consumers may have no choice but to fork out more for food and energy bills, they have the option to stop spending on anything that is not termed as an everyday basic. Often with the case of high inflation and high oil prices, many households do not have much spare cash left after basics to spend on entertainment, eating out or clothes. This inevitably hits retailers hard, as can be seen on many British High Streets where more businesses shut up shop then open for business.

If there is an increase in a business’ operational costs, often one of the first outcomes is redundancies, as employers try to battle increasing costs by getting rid of some staff to make ends meet. This has an obvious effect on employment figures.

Public purse: slower economic growth means the Treasury gets less in tax revenue as businesses struggle to break even.

Against a backdrop of increasing energy prices, there may be the introduction of further benefits to help people cope with higher energy bills.

Take the winter fuel subsidies to the elderly, which has also been extended to some of the poorest families. But increased benefits also means that the public purse is squeezed even further despite less revenue, which inevitably will force the Government to take out more loans and adding to the UK’s existing public debt levels.

There is also the danger of the Government facing a higher interest burden on the portion of the national debt that is linked to inflation, which means it will take us even longer to pay off the debt.

Note that it is harder for the Government to implement the planned increase in petrol duty given the risk of public backlash, as you might have noticed with the delay of the increase to fuel duty by 3p, which has been put back twice already.

Fuel protests and disruptions: widespread anger at the rising cost of fuel could provoke blockades and strikes by unions and the general public. Panic buying and queues at petrol stations are dangerous for public sentiment and overall business activity.