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Social instability and the price of energy

By Julie Bishop - posted Thursday, 17 January 2013


The report also finds that while low energy prices do operate as a welfare safety net, the vast majority of the benefits are captured by higher income households and industry.

Fuel subsidies have also resulted in many Arab countries having the most fuel inefficient transport networks in the world.

The UN report raises most concern about growing populations in the region and the long-term impact on government budgets of maintaining these subsidies.

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It acknowledges that there is little likelihood of significant price rises for energy in the near future as rapidly rising fuel costs would also push up prices for food and other goods.

This would lead to increasing social unrest - something the Gulf States are desperate to avoid in the current climate of uprisings and civil wars.

Historically high oil prices have provided these governments with breathing space although the warning signs are there that reform must be undertaken at some point.

The International Monetary Fund has warned about rapid increases in government spending by Gulf States since 2010 and the depletion of foreign currency reserves by some states.

There is growing concern that a global recession triggered by the ongoing sovereign debt crisis in Europe, a slowdown in China or a failure of the US to reinvigorate its economy could bring sudden and sustained pressure on GCC governments.

This could in turn lead to social uprisings of the kind they have thus far avoided and that has serious implications for the world.

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Energy markets have diversified, particularly on the back of the shale gas and oil revolution in the US, but any disruption to oil supplies from the GCC would send shockwaves through the world economy.

These governments may well be advised to begin carefully the process of energy reform before it is forced upon them at a time when fewer options are available.

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Julie Bishop is the Federal Member for Curtin, Deputy Leader of the Opposition and Shadow Minister for Foreign Affairs.

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