The Unassuming Economist

Sharp increases in oil prices are again provoking fears of the impact on oil-importing countries. Though major oil supply disruptions could still be very disruptive, the oil-importing economies over the years have developed some resilience to oil shocks. There is greater diversification in the sources in oil supply today compared to the 1990s. And diversification in sources of natural gas, an increasingly important source of energy, as been increasing steadily. My research on this topic, co-authored with Gail Cohen and Fred Joutz, is summarized here. And at a presentation I gave today at OPEC headquarters in Vienna, I also stressed other sources of resilience, namely the decreasing sensitivity of real GDP to oil prices and the increasing efficiency in the use of energy. In short, there are many factors that are pushing in the direction on increased “energy security”. But I was also politely—and accurately—reminded by my OPEC hosts that, from the perspective of energy producers, “security of demand is an integral part of energy security”. For energy-producing countries,  “uncertainty about future oil demand—such as that created when oil consuming countries set ‘energy independence’ as their goal—makes producers unwilling to invest tens of billions of dollars for production capacity increases to meet potential future rises in demand.”