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CRISESWar CreatesHeavy Burden on EconomyThe end of the war is not enough to heal the wounds in the Greek and global economies—wounds inflicted by months of international economic uncertainty, weakness in consumerdemand in European and Middle-Eastern markets, the recession in tourism, stock marketinstability, and oil price increases.The end of the war in Iraq mayhave brought rapid decreases ininternational oil prices comparedto pre-war levels, but the Greekeconomy has already suffered.The fact that the price of the crudeoil was over $30 per barrel from Novemberto March, combined with otherinflationary pressures at the beginningof the year, resulted in continuousprice increases for Greek products andservices. Many industrial businesses inthe Greek economy have increasedprices beyond the rate of inflation fortheir products in the past months.Prices for plastics, chemicals, anddyes have increased since their basicraw material is heavily dependent on theprice of crude oil. Other sectors such asmetallurgy, cements, and textiles werealso forced to increased prices since aconsiderable part of their operationalcosts depend on the cost of oil.But households suffered the most, asthe price of heating oil increased by upto 40% from October to February.The war exposed a variety of problemsin the Greek economy, one ofwhich is the country's oil dependence,shown to be greater than any otherEuropean Union member state.“Oil crises usually lead to inflation spikes because rawmaterials become overpriced, which in turn leads to anincrease in product and labor costs, creating a viciouscircle of continuous price increases”.Greece is a "champion"of oil consumptionRecent data show the share of oil in thetotal annual Greek energy consumptionis 67.95%, whereas the EuropeanCommunity average is just 49.4%.Natural gas meets a major part ofthe energy needs in Europe—24.2% ofthe European average—whereas inGreece it accounts for 2% of total annualenergy consumption.Two oil crises: 1973 and 1980The way the Greek economy reactedduring the major oil crises of 1973and 1980 demonstrates some usefulconclusions about the behavior of theGreek economy during periods of oilprice increases.In the first oil crisis in 1973, whenthe Arab world imposed an oil embargoon countries friendly to Israel, theprice of crude oil increased by 300%.Inflation rocketed in both the U.S. andEurope. In 1974, the inflation rate ofOECD member states was 13.4%,whereas in Greece it was double that—at one point reaching 26.9%.In the second oil crisis at the beginningof the 1980s, after war broke outbetween Iraq and Iran, Greek inflationrose to 24.6% whereas in OECDmember states it averaged 12.8%.10 AEGEAN NEWS SPRING 2003