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Mitigating vulnerability to high and volatile oil prices

Publication date:
R. Yépez-García
Type of publication:

The unprecedented rise in world oil prices over the past decade has created greater economic uncertainty and higher risk. Countries with a high proportion of oil in their primary energy supply are especially vulnerable.

At both macro and micro levels, such countries may suffer serious effects, ranging from short-term to permanent changes that hinder potential growth and international competitiveness.

This offers an assessment of how these countries can better cope with high and volatile oil prices. 

The book first analyzes the economic effects of high and volatile prices on oil-importing countries, with emphasis on power sector experience in Latin America and the Caribbean.

Second, it proposes complementary measures that can be applied using a multi-horizon strategy. To manage price risk, various physical and financial hedging tools are available to governments of oil-importing countries.

To reduce oil dependence over the longer term, the book proposes implementing three structural measures: a more diversified electricity generation matrix, better energy efficiency in electricity production and use, and regional integration with more diversified power systems.

Finally, the book quantifies some of the macro- and micro-level benefits that could result from implementing these measures.