Wrong-way bets on oil

YaleGlobal | .

Nations are wary about fast-dropping oil prices and just how long those prices could stay low. Some nations are lured into ongoing dependence on fossil fuels while others reduce consumer subsidies and redirect funds into infrastructure development.

Will Hickey, associate professor at Linton Global College in Daejeon, urges careful management of the windfalls as the decisions will have lasting economic consequences. Developing infrastructure reliant on fossil fuels could be yet another wrong-way bet – investing one way just before the markets take a turn in the opposite direction.

Governments like Indonesia and Malaysia take steps to eliminate consumer fuel subsidies but leave producer subsidies untouched, thus discouraging development of alternative energies. Climate change still poses global threat, and the countries embracing economic recovery based on low-cost oil could suffer the most from severe flooding, storms and drought.

Oil prices will likely rebound, Hickey warns, as will costs associated with inflation and climate change.

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