In the past (1973 1979) the vast majority of all consumption was by developed economies. This time around, nearly half of the world’s oil output is consumed by poor countries. While the oil disruption is the largest we have ever seen, it feels entirely plausible that demand destruction will be mostly contained in poor African and Asian countries with more elastic demand. Developed economies can simply absorb $100 oil while poorer countries get completely priced out. In this case, how much economic impact would we really see? Sure there will be a humanitarian crisis with millions starving to death and losing access to medical care etc but the world economy heavyweights might be fine?
Disclaimer: balls deep in XOP and XLE
How much demand destruction will be absorbed by western economies?
byu/ViolenceIsBad inoil
Posted by ViolenceIsBad
4 Comments
The last period of demand destruction saw a increase in sales for higher mpg cars, this time around I imagine we’ll see a huge increase in electric car sales causing a much bigger effect on demand destruction.
Global oil demand will fall by a few million barrels this year and proceeding years.
Electric car sales in the UK up 2% yoy for Feb and then it jumps up to 24% yoy for march.
It’s a lot easier for developed countries to make cuts though. For example you can do zoom meetings instead of meeting in person, or work from home. Fly-away vacations can be replaced by stay-cations near to home. For poorer countries it’s often not a choice, if your scooter is your only transportation then you do what you need to in order to fill it. They will make the sacrifice until they absolutely cannot afford it.
It’s a sobering thought to think that this conflict is going to cause massive suffering on billions of poor people.
Its not a free market, countries restrict export of oil and fuels when they are facing shortages.
But of course, one country will have shortage of oil, another of oil products and so on, making those deals to help eachother out is going to be a major political and diplomatic challange.
Demand destruction will happen in countries that suck at this sort of negotiating or have nothing to offer and its not such a straightforward divide between poor and rich.
> but the world economy heavyweights might be fine
This is what I basically concluded. Most of the heavyweights have means to reduce their exposure also:
(1) USA: it has both extensive internal oil production and gets it’s *gas* from internal wells, and can’t export LNG fast enough to cause a domestic shortage of natural gas. This means the USA’s electricity supply will be almost unaffected (natural gas prices will go up but only a little because the LNG export capacity can only be run flat out, it can’t ship faster than that).
(2) China : China has the world’s largest oil reserve and has in recent years been massively scaling solar, wind, nuclear, *and* has a bunch of extra coal plants. *And* extensive mass transit. *And* the manufacturing ability to respond to crises by building things to deal with bottlenecks. Unaffected.
(3) Europe : Conservation, imported green energy equipment from China, their economy is busy deindustrializing, they have extensive mass transit
(4) Taiwan : huge fuel imports, but they will outbid everyone else for enough fuel to keep TSMC running and carpool. Island is small anyway.
(5) Japan: huge fuel imports, but they are rich AF. Extensive mass transit. They will be fine. Just buy their way out of any problems
The critical factors holding up the world’s economies like the AI boom and China’s industrial production will be fine. It’s less productive poorer countries that will face the brunt of the problems.