Economics, 3rd Edition

3) Oil production grows at a 

 

slower rate, but the world can’t  

find substitutes. 

As the IMF 

 

authors note, it’s not assured that the 

world can quickly adapt to steadily 

increasing oil prices. Oil is, after all, 

quite valuable and hard to replace. 

Electric cars may not catch on. It’s 

tough to build infrastructure for 

natural-gas vehicles. The chemical 

industry might struggle to find 

substitutes for oil as feedstock. The 

oil substitutes that result turn out to be 

lower quality. In this scenario, wealthy 

regions like Europe, the United States 

and Japan take an annual gross 

domestic product (GDP) hit of 0.4 per 

cent to 0.6 per cent. That starts to hurt.