Oil Supply Disruptions Hit Both Importers and Exporters

The recent oil supply disruptions have led to increased oil prices, raising questions about their economic effects. Economies that are net importers of oil generally face higher energy and production costs, decreasing consumer spending, which can stem economic growth and push up inflation.

Countries that are net oil exporters might gain from higher revenue, benefiting businesses and households. The US became a net oil exporter in late 2018, raising the question of how recent oil supply disruptions will affect the economy as a whole.

A study by the Federal Reserve Bank of San Francisco examines the effects of unexpected oil supply changes on two economies: Canada, one of the world's largest producers and exporters of oil, and the euro area, a large net oil importer. The analysis finds that past oil price increases due to supply disruptions have slowed economic growth and raised inflation in both countries.

The study uses an approach based on Känzig (2021) to identify oil supply changes by observing the movement of oil futures prices around OPEC announcements. It estimates the responses of industrial production and headline inflation in Canada and the euro area, using a statistical procedure called local projections.