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Energy Prices and Crisis Risks

Author: Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics
March 2, 2016

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Robert Kahn testified before the Senate Committee on Foreign Relations, describing the crisis risks generated by persistently low oil and gas prices. He argued that the risks are especially acute for energy exporters such as Venezuela and Nigeria, and that such countries need sizable policy adjustments in the immediate future.

 

 Takeaways:

  • Low oil prices are likely to be persistent. Many emerging market oil exporters drew on fiscal and asset buffers in 2015 to delay adjustment; as buffers diminish, it will be increasingly difficult to put off essential reforms.

  • The playbook for reform includes moving energy prices to world market levels, strengthening and better targeting the safety net, and putting macroeconomic policy on a sustainable footing. The IMF can play a vital role in support of these efforts, reinforcing U.S. strategic interests.

  • Venezuela is an economy on the edge. A default and economic crisis seem to be a question of when, not if. U.S. policymakers need to be planning now for a lead role in resolving the crisis, when Venezuela has a government willing to work with the West.   

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