Economic Exposure to Oil Price Shocks and the Fragility of Oil-Exporting Countries

Abstract

From a price range between 100 and 120 USD (U.S. dollars) per barrel in 2011-2014, the crude oil price fell from mid-2014 onwards, reaching a level of 26 USD per barrel in January 2016. Here we assess the economic consequences of this strong decrease in the oil price. A retrospective analysis based on data of the past 25 years sheds light on the vulnerability of oil-producing regions to the oil price volatility. Gross domestic product (GDP) and government revenues in many Gulf countries exhibit a strong dependence on oil, while more diversified economies improve resilience to oil price shocks. The lack of a sovereign wealth fund, in combination with limited oil reserves, makes parts of Sub-Saharan Africa particularly vulnerable to sustained periods of low oil prices. Next, we estimate the macroeconomic impacts of a 60% oil price drop for all regions in the world. A numerical simulation yields a global GDP increase of roughly 1% and illustrates how the regional impact on GDP relates to oil export dependence. Finally, we reflect on the broader implications (such as migration flows) of macroeconomic responses to oil prices and look ahead to the challenge of structural change in a world committed to limiting global warming.

Changes in Energy Consumption, Economic Growth and Aspirations for Energy Independence: Sectoral Analysis of Uses of Natural Gas in Ukrainian Economy

“…Among the factors that affect the implementation of energy-saving technologies and the overall dynamics of energy consumption, it is necessary to indicate a change in prices of energy carriers [47]. In general, changes in prices of energy resources can have a significant impact on various macroeconomic indicators, in particular on GDP dynamics [48], budget revenues [49], investment activity [50], etc. The results of assessing the impact of changes in prices of energy resources on the economy differ significantly in the various studies devoted to this issue.…”

Evaluation of the Adaptability of the Ukrainian Economy to Changes in Prices for Energy Carriers and to Energy Market Risks

“…It is important to note that the forecasting of prices for energy carriers can be considered as an intermediate stage in the development of forecasts of various macroeconomic indicators, in particular, gross domestic product and budget revenues. In modern scientific literature, there are some fundamental researches of the impact of changes in prices for energy carriers on macroeconomic indicators at the level of individual countries as well as several countries [4,39]. The results show significant differences in the impact of changes in prices for energy carriers on the macroeconomic indicators for different countries.…”

“…This instability causes constant changes in the conditions of activity for enterprises and households. As a result, different changes are taking place in a variety of economic indicators, in particular, in gross domestic product (GDP) [1], in energy consumption [2], in investment [3], in volume of budget revenues [4], in unemployment rate [5], etc. [6,7].…”

The impact of oil price shocks on selected Kazakhstan’s macroeconomic indicators

“…Describing global implications of lower oil prices (Husain et al, 2015) advise that "oil exporters will need fiscal adjustments, with their magnitude and pace varying according to the size of buffers (fiscal vulnerability)." An interesting paper was published by (Vandyck et al, 2018) who estimated "the macroeconomic impacts of a 60% oil price drop for all regions in the world." They also reflected "on the broader implications (such as migration flows) of macroeconomic responses to oil prices and look ahead to the challenge of structural change in a world committed to limiting global warming."…”