RICE (US)—Policymakers must address long-term energy policy challenges in the West and meet economic development challenges in the Middle East to ward off repeated global economic crises.
That is the conclusion of Rice University professors Mahmoud El-Gamal and Amy Myers Jaffe in their new book, Oil, Dollars, Debt, and Crises: The Global Curse of Black Gold, that chronicles the causes of the current oil and global financial crisis and shows how America’s growing dependence on oil has created a repeating pattern of banking, currency, and fuel crises.
The United States and other major economies have not taken adequate measures to address the underlying forces driving the 2007-2008 financial and oil crises, according to the book. Consequently, they have potentially condemned the global economy to future shocks of more catastrophic proportions.
El-Gamal and Myers Jaffe argue that a more complex set of factors are at play where transfers of wealth to the Middle East have resulted in a perfect storm of global asset and financial market bubbles, increased unrest, terrorism, geopolitical conflicts, and rising costs for energy.
“No major country can afford to free-ride on efforts to resolve the crisis, and short-term profiteering from perpetuating the conflicts—regardless of the ideological rhetoric employed to justify it—should be seen by all in the light of its long-term destructive effects of amplifying the global cycles,” they write.
The authors note that recent developments have only intensified geopolitical as well as financial- and energy-market risks.
Continuing and new geopolitical turmoil in Afghanistan, Pakistan, Yemen, and Iran stand poised to provide new catalysts for another spike in oil prices.
Re-inflating bubbles in China and elsewhere—and the inability of the international community so far to coordinate on coherent multinational strategies for regulating energy and financial markets—have set the stage potentially for another financial and economic collapse.
They conclude that the global economy may have avoided a great depression in 2008, but the seeds of the next collapse have been sown, and the urgency to change the dynamics that have led to the most recent collapse is fading quickly.
Mahmoud El-Gamal is professor and chair of the economics department and the Will Clayton Fellow in International Economics at the Baker Institute for Public Policy and Amy Myers Jaffe, is the Wallace S. Wilson Fellow in Energy Studies at the Baker Institute and associate director of the Rice Energy Program.
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