The Fading Importance of Oil in the Global Economy

Strategic Insights -

Canada's reliance on oil exports is due for a rethink in light of the current war in the Middle East, where oil prices have remained surprisingly stable. This contrast between past and present is striking, as the world's investors view the recent conflict as a non-event. Gone are the days when a Middle Eastern war would send oil prices soaring, tipping the global economy into recession and triggering a massive debt crisis in the US.

Key Takeaways:

  • The war in the Middle East has not had a significant impact on the global oil price, which has remained within a narrow band of $60-80 per barrel.
  • This stability is a far cry from the past, when a Middle Eastern war would send oil prices skyrocketing, causing the world economy to slide into recession.
  • The shift in the global economy's dependence on oil is clear, with countries like Ethiopia banning the importation of all but electric vehicles due to their reliance on imported fuel.
  • The oil industry's lobbying for Canada to ease up on its decarbonization goals is a case of stuck thinking, as the country needs to move away from its dependence on a dwindling resource.
  • The Harvard University Index of Economic Complexity reveals that Canada's export profile is reliant on a narrow range of resource exports, which is hindering its economic diversification.
  • The US's experience shows that recycling resource export revenues into developing new industries can lead to long-term economic success.
  • Canada has a golden opportunity to transition away from oil and gas, using its export revenues to support new industries that will eventually replace them.
  • Canada's research and innovation indices place the country near the top of the world tables, but its startup ecosystem is struggling due to the dominance of legacy industries.

Statistics:

  • The global oil price remained within a narrow band of $60-80 per barrel during the Middle East conflict.
  • Oil exports make up the largest share of Canada's exports, but their decline is inevitable given the shift towards renewable energy.
  • Canada's labour productivity is the second-worst in the G7, largely due to its over-reliance on the fossil-fuel industry.
  • The Index of Economic Complexity ranks Canada's export profile as one of the most backward in the world.
  • The US has successfully transitioned from a resource-based economy to a more diversified one, using its resource export revenues to support new industries.

Sources:

  • "Why Empires Fall" and "Twilight of the Money Gods" by John Rapley
  • The Harvard University Index of Economic Complexity
  • The Globe and Mail