Europe’s oil bill is set to reach USD500 billion in 2012

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Rise in oil prices has been magnified by a fall in the value of the euro against the dollar

24 May 2012

Europe is on track to spend over USD500 billion on oil imports this year, which is well in excess of the Greek government’s USD370 billion debt, the IEA’s Executive Director said on 23 May in Paris.

Speaking at a debate on the outlook of the global economy organised by the Organisation for Economic Co-operation and Development, Maria Van der Hoeven stressed that although there has been a recent slide in oil prices, they remain at “worryingly high levels.”

“Prices at these levels are forcing households to either cut back on spending on other items or to increase their debt; they are also undermining the profitability of companies that are unable to pass on fully higher input costs,” she said.

From 2000 to 2010 the average amount spent on oil imports in Europe was USD182 billion a year. In 2011 oil imports reached a record of USD488 billion.

Ms. Van der Hoeven noted that Europe is particularly susceptible at the moment due to its high dependence on oil imports, and also because the rise in oil prices has been magnified by a fall in the value of the euro against the dollar, in which all oil is traded internationally.

Consequently, for the euro the price of Brent – the leading international marker for crude oil – is now comparable to the average level of July 2008, during which oil prices reached a record peak of USD145 per barrel.

Ms. Van der Hoeven offered ideas for oil-importing countries on ways to reduce the economic threat from high oil prices.

The biggest and most immediate economic benefit, she argued, is the removal of subsidies to oil and other forms of energy.

“IEA estimates put fossil-fuel consumption subsidies at USD409 billion in 2010,” she said. “Their removal would build confidence that markets are becoming freer and less distorted while also lowering demand growth for fuels and energy service.”

The IEA Executive Director argued that once energy pricing has been addressed, the next step is to reduce dependence on imported oil and gas. “To the extent that this is achieved through improved energy efficiency, or through the increased reliance on non-fossil forms of energy, these efforts would not only support economic growth but also broader environmental goals,” she concluded.

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