World Energy Outlook 2006

to examine the issue, reflecting the difficulty of capturing all the interacting
effects. Nonetheless, there is no doubt about the direction or significance of the
effects: economic growth fell sharply in most oil-importing countries in the
year or two following each price shock. Indeed, most of the major economic
downturns in the United States, Europe and the Pacific since the 1970s were
preceded by a sudden increase in the price of crude oil, although other factors
were also important in some cases. Several studies involving simulations of
higher energy prices have been carried out since 2000, using integrated
macroeconomic models to gauge the impact of recent price rises and to predict
the effects of further increases. The results of these simulations are not strictly
comparable, as they are based on different assumptions about the starting point
for prices and the extent and duration of the price increase, as well as the policy
responses. Most such studies focus on the industrialised countries.
A 2004 IEA study, carried out in collaboration with the OECD Economics
Department and with the assistance of the IMF Research Department,
estimated the impact of a $10 per barrel rise from $25 to $35 in the
international oil price on importing regions and for the world as a whole. It
found that OECD countries would lose up to 0.4% of GDP in the first and
second years of higher prices compared to the base case. Inflation would rise by
half a percentage point and unemployment would increase by 0.1 percentage
points. Euro-zone countries, which are highly dependent on oil imports, would
suffer most in the short term, their GDP dropping by as much as 0.5% and
inflation rising by 0.5 percentage points in the first year. The United States
would suffer least, with GDP falling by 0.3%, largely because indigenous
production meets a bigger share of its oil needs. Japan’s GDP would fall by
0.4%, with its relatively low oil intensity compensating to some extent for its
almost total dependence on imported oil. In all OECD regions, these losses
start to diminish in the following three years as global trade in non-oil goods
and services recovers.
The adverse economic impact of higher oil prices on oil-importing developing
countries is generally more severe than for OECD countries, because their
economies are more dependent on imported oil and are more energy-intensive.
Heavily indebted poor countries on average would lose 1.6% of GDP and
sub-Saharan African countries as a whole more than 3% in the year following
a $10 oil-price increase. GDP in oil-importing developing Asian countries
would be 0.8% lower. Overall, world GDP would be at least 0.5% lower
– equivalent to $255 billion – in the year following a $10 oil price increase.
This is because the economic stimulus provided by higher oil-export earnings
in exporting countries would be more than outweighed by the depressive effect
of higher prices on economic activity in the importing countries.
302 World Energy Outlook 2006 - FOCUS ON KEY TOPICS
© OECD/IEA, 2007