What About the Poor?

Today’s front month oil contract stands at about $77/barrel. Such prices have not dampened demand in China, where demand growth is running at 11%, or in the United States, where finished motor gasoline consumption reached 9.71 million barrels per day in the week ending July 13, 2007. The volatile but rising oil price since 1999 is the primary signal of a growing supply and demand imbalance in a market with little spare capacity. This indication of scarcity now only inconveniences the wealthy, whose past income growth still allows mostly pain-free purchases. But what about the poor?

A note on a forthcoming ESMAP study, How are Developing Countries Coping with Higher Oil Prices?, describes “policy alternatives adopted by developing countries in response to the increases in world oil prices since the end of 2003.” Before looking at the results, let’s look at some emerging stories in the developing world to get a feel for what’s going on.


…The sporadic, almost anecdotal, nature of such stories in the press hides the systematic reduction of oil consumption in the developing world. The poorer countries get priced out of the market, or can not obtain the fuels they require when supplies are tight. The western press rarely covers the issue. Stories that address the problem surface, and are then forgotten. (See Toiling in the Dark: Africa’s Power Crisis, New York Times, July 29, 2007.) Web searches often turn up reports from 2005, when oil prices first hit $70/barrel. Press accounts from the developing world are hard to find. These stories tend to report on local events, and assume some knowledge of local conditions. Some commentators in peak oil circles have labeled these events with the unorthodox (for economists) term “demand destruction”, but the phenomenon is poorly documented..

ASPO-USA