The Impact of Higher Oil Prices on Low Income Countries and on the Poor

The rapid and large oil price rise
experienced during 2004 has created widespread concern about
its impact on low income countries and on poor households in
many countries. To appreciate the magnitude of this impact
and to formulate policies to ameliorate these effects, a
number of questions need to be answered. What are the routes
by which countries are impacted? Which countries are most
vulnerable to oil shocks? What determines the degree of
vulnerability to such shocks? How much are the poor in
various countries impacted by the effects of higher oil
prices? What policies can reduce the vulnerability of
countries to oil shocks, both immediately and in the medium
to long run? Three levels of analysis are used to discuss
these issues: the macroeconomic, that looks at the direct
impact of the balance of payments and the necessary
adjustment of GDP to restore equilibrium; the mesoeconomic,
that looks at factors which determine a country's
propensity to be a net oil importers, including oil
self-sufficiency, oil dependence and energy intensity; and
the microeconomic that looks at the direct impact and
indirect impacts on households of an increase in oil prices.