The study, which is being presented during the World Bank’s Extractive Industries week-long event, looks at the effects of changing oil prices and of net volumes of traded oil on countries’ vulnerability to rising oil prices. The study, entitled Vulnerability to Oil Price Increases, includes data for 161 countries and covers the period 1996–2006.
The study defines vulnerability as the ratio of the value of net oil imports to gross domestic product (GDP). Vulnerability rises if oil consumption increases and oil production decreases per unit of GDP. For net oil importers, this percentage generally rose, thus increasing their vulnerability during the study period. By contrast, many, but not all, net oil exporters benefited from rising prices.
However, the study also finds that different factors influence changes in vulnerability, the price of oil being just one of them. According to the study, four of these factors are related to oil consumption and three others are related to oil production.
The consumption-related factors include the changes in the price of oil, the share of oil in total commercial energy consumption, the ratio of commercial energy consumed to GDP (referred to as energy intensity), and the proxy real exchange rate. The production-related factors are the changes in the price of oil, the level of oil production, and the inverse of GDP.
"This study demonstrates that policy makers 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," says Somit Varma, director of the World Bank Group’s Oil, Gas, Mining and Chemicals Department. "Countries can also reduce the share of oil in energy by diversifying away from oil, increasing the efficiency of oil use, and reducing net demand for oil-consuming activities."
The study, co-authored by Masami Kojima and Robert Bacon, also examined changes in vulnerability by subdividing the period under review into two sub-periods, 1996–2001 and 2001–2006. The oil price increase during the first sub-period was small, and correspondingly the change in vulnerability was also limited.
On the other hand, change in vulnerability was greater during the second sub-period, which saw a 2.5-fold price increase in nominal U.S. dollars. Between 2001 and 2006 many net oil importers became more vulnerable whereas a number of net oil exporters became even less vulnerable than during the first sub-period.
"Given the higher levels of vulnerability experienced in 2006 and through mid-2008, it is increasingly important for governments to seek policies aimed at reducing oil consumption, particularly given the likelihood of oil prices rebounding once the world economy recovers from the current financial crisis," explains Lead Energy Specialist Masami Kojima, one of the authors of the report.
Some other major results of the study include the following:
* Countries’ vulnerability to the price of oil is unevenly distributed, with a substantial number of countries having experienced high levels of vulnerability by 2006.
* Vulnerability increased in nearly 80 percent of the countries, with several countries registering an increase of more than 10 percentage points of GDP.
* Most of the worst hit countries had high oil vulnerability in 1996.
* The 15 large economies with the highest per capita GDP in 1996 saw only moderate changes in vulnerability, an increase of only up to 2 percentage points of GDP.
* By contrast, some 14 countries that had the lowest per capita GDP in 1996 experienced higher vulnerability in 2006, in 2 of the countries by more than 10 percentage points of GDP.
