Energy in the World Economy, 1950–1992

Trends in energy production, trade, and consumption during 1950–1992 are analyzed, using nine world regions to highlight both North–South energy trade and the regions' differing patterns of industrialization. Following price shocks in 1973 and 1979, and the price drop of the mid–1980s, the industrialized West adjusted its patterns of energy consumption and imports, and the Middle East changed its level of exports. These relationships suggest a cobweb–type model with an equilibrium price for Mideast oil around $30/barrel. This equilibrium could result in zero growth in energy consumption in the industrialized West but continued growth of GDP as energy efficiency increases. Energy prices that are“too high”reduce GDP growth in the short term—to the detriment of both energy importers and exporters—while prices that are“too low”lead in the long term to high dependency on Middle East oil exports, which, in turn, depends on an elusive and costly political stability in that region. The analysis highlights the central role of North–South energy trade in the world economy, and the close but changing relationship of energy with overall GDP growth.