Christopher Allsopp, Oxford Energy Institute
The relationship between energy prices and the world economy is examined. World growth has been strong and benign growth is forecast. However, there are risks from oil price increases and volatility as well as global account imbalances and geopolitics. Oil price impacts (so far) appear very different from past oil shocks with a muted effect on inflation. This has implications for policy responses, simulations and price forecasts.
Interest rates have been going up largely due to rapid actual and anticipated world growth. Growth forecasts are raising concerns over energy security. In the short run, supply and demand elasticities are low, however in the longer run considerable adaptation is likely. Many believe in a ‘new energy paradigm’ with high and volatile prices. High oil prices encourage alternatives such as tar sands and especially cheap and abundant coal. Both raise serious environment and climate change concerns.