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High oil prices a mixed blessing
2006-01-04 14:27:13
By George Michael
THE price of oil is high and continues to rise, because more people are consuming oil.
This was said by Rodrigo de Rato, the Managing Director of the International Monetary Fund (IMF), in the IMF survey.
’The high oil prices are demand driven, which is very different from previous oil hikes.
That doesn’t mean that there aren’t supply constraints in some areas, or that there isn’t a lack of transparency in the markets.
But even taking all these into consideration, the price of oil is high because more people are consuming oil. It is as simple as that,’ he noted.
This means that the world economy is doing a much better job of absorbing shocks caused by supply constraints. It also means that it is going to be a more permanent situation-that is, the oil price floor has risen because of the demand-a reality that oil consumers will have to accept.
And policy makers in oil-importing countries will have to carefully review their energy policies, focusing on conservation and efficiency, he said.
In oil-exporting countries, policy makers will need to recognize that previous hikes in oil prices haven’t always been a blessing.
They often resulted in big disruptions in macroeconomic balances, inefficient public expenditure and greater economic vulnerability, without enhancing development and reducing poverty.
’Of course, this isn’t a universal truth, but it has happened enough times so that we should be very aware that oil prices are a double-edged sword.
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