Rising crude prices to aggravate global poverty, warns IMF

With global crude oil prices hitting the roof, the International Monetary Fund (IMF) has warned that rising prices of scarce natural resource could aggravate poverty.

The multilateral body has also asked the policymakers to take action to reduce risks arising from increased scarcity of oil resources to prevent any abrupt disruptions in supplies.

"Policies need to be complemented with efforts to strengthen social safety nets, because higher oil prices could lead to shifts in income distribution and to increased poverty," the IMF's World Economic Outlook (WEO) said.

The report said that analysis of demand and supply prospects for crude oil suggests that the increased scarcity arises from continued tension between rapid growth in oil demand in emerging market economies and the downshift in oil supply trend growth.

After a year and a half of global recovery, natural resources are again in the headlines. The spot price of a barrel of Brent crude oil crossed the $100 threshold in January, 2011 and is currently ruling over $110 per barrel.

Oil is the most traded commodity, with world exports averaging $1.8 trillion annually during 2007–09, which amounted to about 10% of total world exports in that period.

Since the late 1990s, oil prices have generally risen and supply constraints are widely perceived to have contributed to this trend.

This has raised concerns that the oil market is entering a period of increased scarcity, the WEO said.

As for the effects on the global economy, it said analysis suggests that the impact of increased oil scarcity on global growth could be relatively minor if it involves primarily a gradual downshift in oil supply growth rather than an absolute decline.

"...Oil scarcity will not inevitably be a strong constraint on the global economy," it said but added: "However, the risks it poses should not be underestimated either".

It said much will ultimately depend on the extent and evolution of oil scarcity, which remain uncertain.

"There is a potential for abrupt shifts, which would have much larger effects than more gradual shifts," it added.

The report said that at current high levels, commodity price developments and prospects can have important global economic repercussion.

The possibility that rising energy prices will spill over into core inflation is just one example, it said.