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Mon, Aug 06, 2007 - Page 10 News List

Record oil prices taking toll on poorer economies


Record high oil prices, while having little effect on the world's industrialized nations and benefiting oil-producing emerging economies, are taking a toll on poor countries that rely on imports, analysts said.

World oil prices this week hit a record high when New York crude prices reached US$78.77 per barrel on news of sliding US crude reserves.

"You cannot say that this has had any effect on the world economy," said Philippe Chalmin, an economics professor at Paris Dauphine university.

"Rich countries have been remarkably good at adapting to significantly higher oil prices" over the past four years, said Francis Perrin, director of the Le petrole et le gaz arabes publication.

That situation is likely to continue. Demand for oil has soared in recent years because of the needs of emerging economies, in particular China, and because of the growing world economy.

It is rising today much faster than production capacity, which is likely to keep up the pressure on prices and prevent a return to price levels of five years ago, when a barrel was worth around US$25.

But despite soaring prices today, the IMF has just raised its forecast for world growth to 5.2 percent for this year and next year and says that while it recognizes that high oil prices present a risk, it is not alarmed.

Industrialized countries are today much less dependant on oil than they were 30 years ago, said Manouchehr Takin from the Center for Global Energy Studies.

They diversified their energy sources after the oil crises of the 1970s and 1980s, with some turning to nuclear power, and they also improved energy efficiency.

Takin however said that if oil prices climb beyond US$80, the trend could have a psychological effect and curb growth and accelerate inflation.

Oil-producing economies such as Algeria, Venezuela or Libya have profited handsomely from high prices, but many analysts say that the price rises are a calamity for developing countries that rely on imports for their energy needs.

Their oil bills have ballooned, which has worsened their deficits and hampered the fight against poverty.

Claude Mandil, head of the International Energy Agency watchdog, warned recently of a "catastrophe" for the world's poorest countries that had forced the state to provide subsidies for oil.

He said the cost of these subsidies was five times higher than the savings made when rich lender nations wrote off poor countries' debts.

The Organization for Economic Cooperation and Development said in its latest report on African economic perspectives that because of high oil prices, inflation had climbed beyond 10 percent in many of the continent's countries that relied on oil imports.

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