IMF World Economic Outlook, April 2011, “Oil Scarcity, Growth, and Global Imbalances”.

I read this full chapter of the WEO report and pulled out some excerpts for you. They try to put a positive spin on it somewhat, but clearly acknowledge for the first time the serious nature of peak oil on the global economy. This fact alone is fairly significant, even if rather late:

The persistent increase in oil prices over the past decade suggests that global oil markets have entered a period of increased scarcity. Given the expected rapid growth in oil demand in emerging market economies and a downshift in the trend growth of oil supply, a return to abundance is unlikely in the near term.

Consumption levels of many natural resources, including crude oil, have already risen above precrisis peaks, largely reflecting robust demand in emerging and developing economies.

There is considerable uncertainty about how strong the tension will be between rapid growth in oil demand in emerging market economies and the downshift in oil supply trends.

The key question for the future is how the larger and likely growing number of maturing oil fields will affect the global oil supply outlook. In particular, is the broad stagnation in oil production over the past five years temporary or more permanent?

The reduced availability of oil and the resulting higher oil prices lead to a reduction in GDP levels in oil importers in the longer term.

The most striking aspect of this scenario is, however, that supply reductions of this magnitude would require an increase of more than 200 percent in the oil price on impact and an 800 percent increase over 20 years. Relative price changes of this magnitude would be unprecedented and would likely have nonlinear effects on activity that the model does not adequately capture.

if the reductions in oil output were in line with the more pessimistic studies of peak oil proponents or if the contribution of oil to output proved much larger than its cost share, the effects could be dramatic, suggesting a need for urgent policy action. In the longer term, the worst eff ects would be experienced by regions whose production is highly oil intensive, such as emerging Asia, and/or with weak export links to oil exporters, such as the United States.

the simulations do not consider the possibility that some oil exporters might reserve an increasing share of their stagnating or decreasing oil output for domestic use, for example through fuel subsidies, in order to support energy-intensive industries (for example, petrochemicals) and also to forestall domestic unrest. If this were to happen, the amount of oil available to oil importers could shrink much faster than world oil output, with obvious negative consequences for growth in those regions.

Industries and firms that produce oil-intensive goods or use them as inputs are particularly vulnerable to oil price increases. Some of these industries and firms may no longer be profitable if oil prices stay high for long…. The adverse effects of large-scale bankruptcies in hard-hit industries can spread to the rest of the economy…

Regarding policies aimed at lowering the worst case risks of oil scarcity, a widely debated issue is whether to preemptively reduce oil consumption— through taxes or support for the development and deployment of new, oil-saving technologies.

lowering oil consumption through higher taxes could reduce growth and welfare during the period before serious scarcity has emerged.

Finally, the model simulations indicate that persistent oil supply shocks would imply a surge in global capital flows and a widening of current account imbalances.

Full .PDF here.



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