Nesa identified Issues: Strait of Hormuz
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- 5.2.1Impacts for Australia
- Real income
- Exchange rate and trade
- Impact on selected industry sectors
- 5.2.2Impacts on other countries
- 5.2.3Liquid fuel consumption
5.2ResultsThe results from week 1 to week 23 are shown in Table . Table Results from Week 1 to Week 23, relative to the reference case
Note: ‘Rest of World’ includes the rest of OPEC plus other large oil producers Data source: ACIL Tasman modelling. 5.2.1Impacts for AustraliaReal GDPThe results show that for Scenario 1, Australia’s GDP is $556 million lower over the 23 weeks under the low elasticities case (case A) and $465 million lower under the high elasticities case (case B). These losses represent –0.087 per cent and –0.073 per cent of GDP that would be produced over the 23 week period respectively. The results for Scenario 2 are not significantly different. The reason is first, the nature of the shock (as characterised in Chapter 4) is affecting crude oil margins rather than refinery margins and second, that the impacts are estimated relative to a reference case where only 4 refineries are operating. As discussed earlier, the scenarios are compared to different reference cases, which removes the economic impact of differences in the number of operating refineries. Real incomeUnder scenario 1 real income is reduced by $3,118 million over the 23 weeks under the low elasticity case and $2,148 under the high elasticity case. Under scenario 2 real income loss over the 23 weeks is $3,108 million under the low elasticity case compared to $2,141 million under the high elasticity case. In each scenario, these losses represent just under 0.5 per cent and just over 0.3 per cent of the real income that would be produced over the 23 week period respectively. The larger projected loss in Australia’s real income compared to the change in real GDP can be attributed to the change in terms of trade arising from the increase in the price of crude oil and petroleum products.14 The larger difference in real incomes under the low and high elasticity cases than arose for GDP can be attributed mainly to the fact that under the low elasticity case, Australia pays higher prices for more crude oil and petroleum products than under the high elasticity case. As a significant proportion of the crude oil and product is imported, the income transfers abroad (via the terms of trade loss) are higher which reduces real incomes. In summary, for the two reasons noted above, the operation of four refineries rather than seven will have a negligible impact on the fall in GDP and in real incomes resulting from the oil supply shock. The impact on real incomes is more significant than the impact on GDP because Australia is a net importer of crude oil and petroleum products and the higher prices paid increases income transfers abroad. This is not offset by higher prices for petroleum exports in the short term. Exchange rate and tradeIn Tasman Global, it can be shown from the macroeconomic accounting identities that the change in the capital account (namely, savings less investment) equals the change in the trade account (namely, exports minus imports). Change in the real exchange rate is the mechanism by which this identity is achieved in the model. There is a range of ways to describe what the real exchange rate in CGE models such as Tasman Global represents. At heart though, a declining real exchange rate implies a reduction in purchasing power of the regional output bundle relative to the global average. Similarly, an appreciation of the real exchange rate is akin to an increase in terms of trade where the purchasing power of the region’s output increases. As discussed previously, the primary impact of the supply disruption is not a change in output but a change in the cost of imported crude oil and petroleum products. This is equivalent to a net wealth transfer from regions that are net importers of crude oil and petroleum products to those that are net exporters. In the case of Australia, the net wealth transfer results in lower real income which results in lower savings, relative to the reference case. In the model closure used for this analysis, (to the first order) investment moves with real GDP. Consequently, there is a net decline in Australia’s capital account (that is, savings fall relative to investment). Countries that are more exposed to the increase in crude oil and product prices will have a bigger loss in their trade account which needs to be balanced by bigger changes in their capital account15. To balance the macroeconomic identities, the real exchange rate therefore needs to move to create a net decline in the trade account (that is, to reduce the value of exports relative to imports). This happens simultaneously across all regions to solve for the suite of bilateral real exchange rates to clear global physical and financial traded markets. The projected changes in Australia’s bilateral exchange rates are presented in Table . As can be seen, over the 23 weeks Australia’s real exchange rate is projected to depreciate relative to the major oil exporting regions but is projected to appreciate relative to most of our major trading partners, including for example European Union countries that are particularly vulnerable to interruptions. In particular, under Scenario 1, Australia’s real exchange rate (on a trade-weighted basis) is projected to appreciate by an average of 0.69 and 0.29 per cent relative to the reference case under the low and high elasticities cases, respectively. Similar changes are projected under Scenario 2. Table Average change in Australian bilateral real exchange rates (Week 1 to 23), relative to the reference case
Data source: ACIL Tasman modelling Impact on selected industry sectorsThe impact on real industry output for selected industry sectors is shown in Table . In interpreting these results it is important to note as a result of the characterisation of the disruption event that the impacts are small relative to the size of the sectors. This shows that the biggest impact on output occurs in the services sector. The change in real output over this period is –0.08 per cent (–$706 million) for case A (low elasticities) and –0.08 per cent (–$679 million) under case B (high elasticities) under Scenario 1. The results for Scenario 2 are not significantly different. It is important to note that the services sector comprises around three quarters of the Australian economy and final demand for services is the most sensitive to changes in real income. The manufacturing sector gains 0.08 per cent ($171 million) under case A (low elasticities) and 0.08 per cent ($156 million) under case B (high elasticities) under Scenario 1. The results for Scenario 2 are not significantly different. This arises primarily through a slight switching toward domestically manufactured goods away from imported goods as a result of the lower proportionate increase in the retail prices. For both scenarios, agriculture is projected to lose real output of 0.21 per cent ($64 million) and 0.07 per cent ($22 million) under case A (low elasticities) and case B (high elasticities), respectively. Agriculture is a relatively high user of diesel fuel (as a share of their total costs) and the higher prices for diesel are the main cause of the loss of real income. Mining output increases by around 0.06 per cent ($57 million) under case A (low elasticities) and falls by 0.08 per cent ($76 million) under case B (high elasticities) in each Scenario. While diesel fuels are important in mining operations and in transport services, fuel costs are not a significant component of the total cost structure in the mining industry (particularly at current commodity prices). The projected impacts on the mining industry are mixed, however, indicating that the direction of the impact is quite sensitive to the assumptions used in the modelling. Transport sector output falls by 0.21 per cent ($109 million) and 0.12 per cent ($60 million) under case A (low elasticities) and case B (high elasticities), respectively under Scenario 1. The results for Scenario 2 are not significantly different. Table Changes in real industry output for selected industries (Week 1 to 23), relative to the reference case
Note: Mining includes petroleum, gas, coal and other minerals extraction. Data source: ACIL Tasman modelling 5.2.2Impacts on other countriesThe Countries that experience the largest impact on real GDP are the Middle East, the European Union, Japan, South Korea, North America and India. However, when the impact on real incomes is considered the countries that are the higher losers include the European Union, United States and Canada, China and Japan. The Middle East experiences a fall in GDP ($88,421 million) but a rise in real income ($21,869 million) under Scenario 1, because it can export at higher prices in the weeks prior to week 5 as well as during the months after the reopening of the Strait as IEA countries rebuild their stocks. Given the assumed inelastic nature of demand and supply, the benefit of the higher prices is projected to offset the large income losses that occur in weeks 5 and 6 (when the Strait were closed). Excluding the impact of the stock rebuilding phase, the Middle East is projected to lose a total of $9.7 billion of real income in weeks 1 to 7 under Scenario 1 (and a loss of $17.2 billion under Scenario 2). It is likely that if the stock rebuilding phase occurred over a longer time frame than assumed in this analysis the projected aggregate benefit to the Middle East under Scenario 1 would be less or even negative. The Rest of World (which includes the rest of OPEC plus other large oil producers) is projected to experience a net increase in real incomes under all scenarios.
Figure Percentage decline in liquid fuel consumption relative to the base case
Note: Liquid fuels include LPG, petrol, jet fuel, diesel, fuel oil, bitumen and lubes Source: ACIL Tasman Directory: system -> files -> energy -> files files -> Haiti Relief – esf 15 Support Organization Situation Report # 16 1/27/10 files -> Right to Carbon or Right to Life: Human Rights Approaches to Climate Change files -> Enhancing interactive learning in the classroom with Turning Point files -> Curriculum vita files -> - files -> Acknowledgements files -> Nw, Washington D. C 20037 Telephone: (202)884-1080, (202)939-6125/7 files -> Grey-headed Flying-fox Management Strategy for the Lower Hunter Grey-headed Flying-fox files -> Australia's Maritime Petroleum Supply Chain Download 0.96 Mb. Share with your friends:
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