"Oil prices matter to the health of the world economy," the International Energy Agency says in a report.
The direct impacts are much less on the western countries, but more on the oil-importing developing economies whose budgets are already strained by huge external debts.
Fears of OPEC supply cuts, political tensions in Venezuela and tight stocks have driven up international crude oil and product prices even further in recent weeks, the IEA said. It cited that crude prices were well over US$10 per barrel higher than three years before. "Current market conditions are more unstable than normal, in part because of geopolitical uncertainties and because of tight product markets–notably for gasoline in the United States–are reinforcing upward pressures on crude prices," it said.
In a quantitative assessment made by the IEA, higher oil prices on oi-importing developing countries is generally even more severe than for OECD countries. "This is because their economies are more dependent on imported oil and more energy-intensive, and because energy is used less efficiently."
The IEA added that on the average, oil-importing developing countries use more than twice as much oil to produce a unit of economic output as do OECD countries. Developing countries are also less able to weather the financial crisis wrought by higher oil-import costs. For instance, India spent $15 billion, equivalent to 3% of its GDP, on oil imports in 2003.
The IEA estimated that the loss of GDP averages 0.8% in Asia and 1.6% in very poor highly indebted countries in the year following a $10 oil price increase. In Sub-Saharan Africa, the loss to GDP would be more than 3%. The negative effects are traced to the economic stimulus provided by higher oil-export earnings in OPEC and other exporting countries, and outweighted by the depressive effect of higher prices on economic activity in the importing countries.
"The transfer of income from oil importers to oil exporters in the year following the price increase would alone amount to roughly $150 billion," the IEA reported. And for as long as oil prices remain high and unstable, the economic prosperity of oil-importing countries–especially the poorest developing countries–will remain at risk, it stated.
According to the IEA report, the Asia, which imports bulk of its oil, would experience a 0.8% fall in economic output and a one percentage point deceleration in its current account balance one year after the price increase. Some countries woujld suffer much more. The Philippines would lose 1.6% of its GDP in the year following the oil price increase, and India 1%. China’s GDP would drop 0.8% and its account surplus, which amounted to around $35 billion in 2002, would decline by $6 billion in the first year.
"Asia would also experience the largest increase in inflation in the first year, on the assumption that the increase in international oil price would be quickly passed through into domestic prices," the report added.