Study: Lower-middle income countries most feel oil price swings

Lower-middle income countries were the most vulnerable to global oil price increases over 10 years, according to a new study released by the World Bank's Oil, Gas & Mining Policy division.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 4 -- Lower-middle income countries were the most vulnerable to global oil price increases over 10 years, according to a new study released by the World Bank's Oil, Gas & Mining Policy division.

The study, presented Mar. 3 during the bank's week-long extractive industries conference, defined vulnerability as the ratio of the value of net oil imports to gross domestic product. A country's oil price vulnerability rises if its oil consumption increases and its oil production decreases per unit of GDP, it explained.

"For countries that consume more [oil] than they produce, a change in the balance of…the value of net oil imports is a measure of the adjustment that will have to be made when oil prices rise (in the absence of other offsetting exogenous shocks). The adjustment will have to be made by deflating the economy to restore the balance of payments or running down foreign exchange reserves," it said.

The study, "Vulnerability to Oil Price Increases," included data for 161 countries and covered the 1996-2006 period. It was written by Robert Bacon, a consultant to the World Bank division, and Masami Kojima, a lead energy specialist in the group. A summary is available online.

The report also found that factors related to oil's consumption and production other than its price also influenced a country's oil price vulnerability. Consumption-related factors are oil's share in total commercial energy use, the ratio of commercial energy consumed to GDP (or energy intensity), and the proxy-real exchange rate. Production-related influences also included oil production levels and the inverse of GDP, it said.

"This study demonstrates that policymakers can, to varying degrees, reduce the vulnerability of their countries' economies to oil prices by influencing import dependence and reducing the economy's energy intensity, among other factors," said Somat Varma, the World Bank department's director.

"Countries can also reduce the share of oil in energy by diversifying away from oil, increasing efficiency of oil use, and reducing net demand for oil consuming nations," he added.

Contact Nick Snow at nicks@pennwell.com.

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