World Energy Outlook 2006

non-transport demand – which is more sensitive to price – accounts for a larger
share of total oil use there and because income elasticities of oil demand are
generally higher than in OECD countries. Nonetheless, the transport sector
accounts for most of the reduction in demand in all regions (Figure 11.17).
Figure 11.17: Change in Primary Oil Demand in the High Energy Prices Case
by Region and Sector Compared with the Reference Scenario, 2030
OECD
Non-OECD
–2.0 –1.5 –1.0 –0.5 0
Transport
mb/d
Industry Power generation Other
Macroeconomic Impact of Higher Energy Prices
How Higher Energy Prices Affect the Macroeconomy
An increase in the price of oil and other traded forms of energy leads to a
transfer of income from importing to exporting countries through a shift in the
terms of trade. For oil-importing countries, the immediate magnitude of the
direct effect of a given oil-price increase on national income depends on the
ratio of oil imports to GDP. This, in turn, is a function of the amount of oil
consumed for a given level of national income (oil intensity) and the degree of
dependence on imported oil (import dependence). It also depends on the
extent to which gas and other energy prices rise in response to an oil-price
increase and the gas-import intensity of the economy. Naturally, the bigger the
initial oil-price increase and the longer higher prices are sustained, the bigger
the macroeconomic impact. In the longer term, however, the impact will be
reduced according to how much end users reduce their energy consumption
and switch away from oil and how much domestic production of oil and other
fuels increases in response to sustained higher prices. For net oil-exporting
Chapter 11 - The Impact of Higher Energy Prices 297
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