Introduction#
UBS economist Arend Kapteyn recently shared insights on how the global economy today is less susceptible to oil price shocks compared to the crises of the 1970s. This assessment comes amid rising oil prices and ongoing geopolitical tensions.
Oil Spending and GDP#
Kapteyn pointed out that the proportion of oil spending relative to Gross Domestic Product (GDP) has significantly decreased since 1974. He noted that this share has “more than halved,” indicating that even with higher oil prices, the economic impact is less severe than in the past.
Comparison of Oil Consumption#
In a detailed comparison, Kapteyn analyzed oil consumption in the United States between 1974 and 2024. In 1974, the U.S. consumed 803 million tonnes of oil, which accounted for about 4.8% of GDP. Fast forward to 2024, and consumption is projected to be slightly higher at 813 million tonnes, but GDP has increased nearly twentyfold. At the current average oil price of $81 per barrel, oil spending is now around 1.7% of GDP. Even if prices rise to $100 per barrel, this figure would only increase to about 2% of GDP, still significantly lower than in 1974.
Trends in Europe#
A similar trend is observed in Europe, where UBS estimates that oil spending has decreased from approximately 3.7% of GDP in 1974 to around 1.8% in 2024. This decline is attributed to slower GDP growth and improvements in energy efficiency.
Conclusion#
Kapteyn's analysis highlights a crucial shift in the global economy: the reduced reliance on oil has lessened the macroeconomic impact of rising oil prices. This change suggests that while oil prices may fluctuate, the overall economic strain is not as pronounced as it once was.