Economics, 3rd Edition

1) Oil production grows very 

slowly or plateaus. 

This is the 

baseline scenario that Kumhof and 

Muir use. They assume that oil 

grows by about 1 percentage point 

less each year than its historical 

average. So, let’s say, oil grows at a 

steady  0.8 per cent per year rather 

than the 1.8 per cent annual average 

between 1981 and 2005. This isn’t a 

temporary oil disruption like the one 

we saw in 2008. It’s a persistent, 

long-term supply shock.

What would happen? Oil prices, 

the IMF model suggests, would 

gradually double in 10 years and 

quadruple over 20 years. Regions 

that import oil on net, such as 

Europe and the United States, would 

see a small hit to growth – about  

0.2 to 0.4 percentage points each 

year. Countries that export, like 

Saudi Arabia, would get a lot 

wealthier.