Oil price 'may hit $200' - developing countries face collapse
Oil prices have risen 25% in the last four months and by an incredible 400% from 2001. Goldman Sachs energy strategist Argun Murti now warns that all parameters point to the occurence of a 'super-spike' past $200 in six months to two years' time. He joins OPEC's very own chief, who recently uttered the same frightening words.
Murti correctly predicted three years ago - when oil was about $55 a barrel - that it would pass $100, which it reached for the first time in January of this year.
Current oil prices - benchmark US light crude passing the $122 mark for the first time on Tuesday - are having destructive effects on all productive economic sectors of the oil importing least developed countries (LDCs). Of the 47 poorest countries in the world, 38 are net importers of oil, and 25 are fully dependent on imports.
Back when oil stood at a 'very low' $60, the United Nations already warned for the 'devastating' effects (previous post):
The African Development Bank, writing with a 'high' oil price of $70 per barrel in mind, added some other depressing micro- and macro-economic prospects for African economies:
So what can poor countries do? Not much, because the problem is that there are no feasible alternatives to liquid fuel products, and that demand for these fuels is price inelastic. Highly developed countries can often consume a bit less or draw on strategic reserves, but the energy intensive countries of the poor South do not have this capacity. They can invest in biofuels - and most of these countries have a very large potential to produce them in a sustainable and highly competitive manner - but projects may take years to come online.
The recent food riots, already the result of record oil prices (and much less the result of biofuels) might just be a prelude to what's to come. Maybe the doom-scenarios sketched so often by 'Peak Oil' analysts will begin to play out after all. And they will hit the poorest countries first.
ethanol :: biodiesel :: biomass :: bioenergy :: biofuels :: energy :: sustainability :: peak oil :: collapse :: Africa ::
Murti correctly predicted three years ago - when oil was about $55 a barrel - that it would pass $100, which it reached for the first time in January of this year.
Current oil prices - benchmark US light crude passing the $122 mark for the first time on Tuesday - are having destructive effects on all productive economic sectors of the oil importing least developed countries (LDCs). Of the 47 poorest countries in the world, 38 are net importers of oil, and 25 are fully dependent on imports.
Back when oil stood at a 'very low' $60, the United Nations already warned for the 'devastating' effects (previous post):
Recent oil price increases have had devastating effects on many of the world's poor countries, some of which now spend as much as six times as much on fuel as they do on health. Others spend twice the money on fuel as they do on poverty alleviation. And in still others, the foreign exchange drain from higher oil prices is five times the gain from recent debt relief.Each dollar increase in the price of oil directly affects LDCs' capacity to provide health care, education, and basic public and social services to their people. Agriculture, the mainstay of most of these economies, is badly hit and farmers can be thrown back into subsistence farming and hunger when oil hits a treshold that makes agricultural production and marketing difficult. All other productive sectors of LDC-economies depend on affordable fuels.
The African Development Bank, writing with a 'high' oil price of $70 per barrel in mind, added some other depressing micro- and macro-economic prospects for African economies:
- the risk of hyper-inflation, including steep increases in the price of food and basic staples; significant increases in real interest rates; the incapacity to introduce non-inflationary monetary policies
- declining domestic and foreign investment
- increasing unemployment, with the poor hit first and hardest
- decreased capacity to trade, as foreign currency pools dry up
- the destruction of the effect of debt relief efforts
- the erosion of the state budget, both at the revenue and the expenditure side; revenues decline as the profitability of businesses decreases
So what can poor countries do? Not much, because the problem is that there are no feasible alternatives to liquid fuel products, and that demand for these fuels is price inelastic. Highly developed countries can often consume a bit less or draw on strategic reserves, but the energy intensive countries of the poor South do not have this capacity. They can invest in biofuels - and most of these countries have a very large potential to produce them in a sustainable and highly competitive manner - but projects may take years to come online.
The recent food riots, already the result of record oil prices (and much less the result of biofuels) might just be a prelude to what's to come. Maybe the doom-scenarios sketched so often by 'Peak Oil' analysts will begin to play out after all. And they will hit the poorest countries first.
ethanol :: biodiesel :: biomass :: bioenergy :: biofuels :: energy :: sustainability :: peak oil :: collapse :: Africa ::
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