Oil, int’l macro and geopolitics Torbjörn Becker Director, Stockholm Institute of Transition Economics Stockholm School of Economics

Points to discuss A few notes on supply and demand ◦ Global warming, carbon taxes etc? ◦ ”Macro is back” Traditional reserves/production and demand – who are the major players on both sides ◦ ”Winners” and ”loosers” of shale gas/oil ◦ BRICS and energy Emerging markets overtaking developed countries in terms of economic size Russia

”Simply” Supply and Demand but… Short vs long run ◦ TK focused on structural factors that are important for long-run price trends (climate policies?) ◦ ”Short” run factors still create enormous variation in prices with uncertain forecasts – link with macro Partial vs general equilibrium ◦ First-round price effects from new supply sources and reduced demand will affect economic activity and also incentives for future investment in both enhancing supply and reducing demand ◦ Emerging markets will be very important for how this evolves, both on supply and demand side

Useful forecasts?

“Fluctuations in economic activity and in the outlook are the primary determinant of short-term commodity price movements, with some caveats. …. commodity-wide factors have mainly reflected common macroeconomic developments” IMF 2012

Oil supply (2012)

Oil demand (2012)

Growth forecast ( USD BNP, IMF)

Oil reserves

Gas reserves

“Winners” and “Loosers”? Time perspective crucial Transition processes triggered by oil price swings are likely to be messy in countries where autocratic political power structures are based on extraction revenues How many oil nations can develop by just extracting oil? Can Russia catch up with West just by extraction?

Oil supply vs political freedom 7/7 6/6 1/1 1/1(?) 6/5 2/2 ?/? 5/5 6/6 4/5 5/5 4/4 Political rights/Civil liberties, 1 is best, 7 worst (Freedom house)

WB: “Subsoil wealth of nations” ($/capita)

Total wealth of nations ($/capita)

Putin’s Russia

Oil price drives Russian GDP

Russian exports, all about extraction

Russian government budget, half is oil and gas

Medvedev’s “awakeing” The crisis made the dependence on oil and gas and need for reforms obvious ”Russia forward!” in Sept 2009 Agenda ◦ Innovations (Skolkovo=Silicon Valley) ◦ Energy efficiency ◦ International financial center ◦ Fight corruption, Law and order ◦ E-government Putin and higher oil prices has changed the sense of urgency for reforms

Thanks! Torbjörn Becker Stockholm Institute of Transition Economics (SITE)/ Östekonomiska institutet vid Handelshögskolan i Stockholm