Dan Boyle (Cork South Central, Green Party)
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Question 244: To ask the Minister for Finance if, in view of a report (details supplied) which predicts a super-spike in oil prices to $105 a barrel, his Department has simulated the economic and fiscal effects of oil prices rising to $70, $90, and $105 a barrel, respectively; if he will publish any such research; and if he will make a statement on the matter. [13385/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Economic models can be used to simulate the possible impact of changes in oil prices. Model results suggest that, holding other factors constant, each sustained $10 per barrel rise in the price of oil reduces growth in the Irish economy by approximately 0.5 percentage points in a full year, relative to baseline. As outlined in the stability programme update of December 2004, this lower growth would have a negative impact on the public finances, reducing the fiscal balance by around 0.25% of GDP.

However, it should be recognised that model-based studies are subject to a number of limitations. First, simulations rely on extrapolation from past trends in oil prices and growth. As oil has not in the past risen to a level as high as $70 per barrel, it is difficult to accurately simulate such a scenario because there are no past data on which to base an estimate. Second, substantial structural change in the economy has taken place over recent years. This has involved a greater relative importance of services which are less energy intensive and a decline in the relative importance of traditional manufacturing sectors which are more energy intensive. This has reduced our dependence on oil. For example, oil imports in the late 1970s amounted to around 6.5% of GDP. The equivalent figure in 2004 was approximately 1.25% of GDP. As a result of these factors, estimates of the impact of oil prices rising to in excess of $70 would contain a high degree of uncertainty.