Question

we saw that major geo-political events—such as the Iran-Iraq war, for example—can cause sudden disruptions to oil supplies. What are two strategies that governments or firms can use to reduce the economic risks that these disruptions would otherwise pose to their businesses or societies?

Answer 1

The governments can use the following two strategies:

1. Governments can diversify the sources from which they obtain oil. For instance, instead of relying only on middle eastern countries, government can explore other oil producing countries to ensure the uninterrupted flow of oil. Moreover, countries can try exploring oil in their own country to reduce the excessive dependence on other countries to prevent the economic risks associated with it.

2. Governments can explore other sources of energy production and use those wherever feasible. For example, promotion of electric vehicles etc. This will help in reducing dependence on oil and and allow the governments to explore various other options that are sustainable and eco friendly.