The Unassuming Economist

Oil prices are likely to remain high for the foreseeable future, and IMF economists say that governments should be looking to back sustainable alternative sources of energy. IMF analysis released as part of its World Economic Outlook says improvements in oil supply have been slow.

As the price of oil broke through $100 a barrel recently, economists have started whispering the dreaded R word – recession. The last five oil shocks – 1973-74 Arab oil embargo; 1978-79 Iranian Revolution; 1980s Iran-Iraq war; 1990-91 Gulf War and the oil spike of 2007-08 – all triggered global recessions. To continue reading, see the recent article by China Daily.

Improvements in energy diversification for OECD nations – a key determinant of energy security – are mostly attributable to the increased importance of natural gas as an energy source, a recent IMF working paper reveals. To read more, see the commercial climate’s Blog article on the paper.

World oil prices are back above $100 a barrel, more than double levels two years ago, but increased diversification of energy supplies has given many economies greater resilience to price fluctuations. However, countries remain vulnerable to supply disruptions and extreme oil price volatility. To continue reading, see the IMF Survey piece on the rising oil prices.

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.”