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A new IMF report, not to be ignored. Last graph puts it together:
http://www.washingtonpost.com/blogs...ould-do-serious-damage-to-the-global-economy/
The possible scenarios:
1) Oil production grows very slowly or plateaus. This is the baseline scenario that Kumhof and Muir use. They assume that oil grows by about 1 percentage point less each year than its historical average.
2) Oil production grows at a slower rate, but the world adapts fairly easily. In this scenario, oil production declines, but countries start switching to electric cars or fueling their vehicles with natural gas. Vehicles and manufacturers become more efficient. In economist terms, the “elasticity” of demand quickly increases.
3) Oil production grows at a slower rate, but the world can’t find substitutes. As the IMF authors note, it’s not assured that the world can quickly adapt to steadily increasing oil prices. Oil is, after all, quite valuable and hard to replace. Electric cars may not catch on. It’s tough to build infrastructure for natural-gas vehicles. The chemical industry might struggle to find substitutes for oil as feedstock.
4) Oil turns out to be far more important than most economists had assumed. The Energy Information Administration estimates that petroleum purchases make up just 3.5 percent of the U.S. economy. Looked at from that angle, expensive oil shouldn’t do too much damage. But, the IMF authors note, several books and articles have pointed out that this understates how crucial oil is to the functioning of a modern economy.
5) Oil production starts shrinking rapidly. This is the doomsday scenario. Nothing good.
The full report: Oil and the World Economy: Some Possible Futures
http://www.washingtonpost.com/blogs...ould-do-serious-damage-to-the-global-economy/
The possible scenarios:
1) Oil production grows very slowly or plateaus. This is the baseline scenario that Kumhof and Muir use. They assume that oil grows by about 1 percentage point less each year than its historical average.
2) Oil production grows at a slower rate, but the world adapts fairly easily. In this scenario, oil production declines, but countries start switching to electric cars or fueling their vehicles with natural gas. Vehicles and manufacturers become more efficient. In economist terms, the “elasticity” of demand quickly increases.
3) Oil production grows at a slower rate, but the world can’t find substitutes. As the IMF authors note, it’s not assured that the world can quickly adapt to steadily increasing oil prices. Oil is, after all, quite valuable and hard to replace. Electric cars may not catch on. It’s tough to build infrastructure for natural-gas vehicles. The chemical industry might struggle to find substitutes for oil as feedstock.
4) Oil turns out to be far more important than most economists had assumed. The Energy Information Administration estimates that petroleum purchases make up just 3.5 percent of the U.S. economy. Looked at from that angle, expensive oil shouldn’t do too much damage. But, the IMF authors note, several books and articles have pointed out that this understates how crucial oil is to the functioning of a modern economy.
5) Oil production starts shrinking rapidly. This is the doomsday scenario. Nothing good.
The full report: Oil and the World Economy: Some Possible Futures