Long-run impacts of high energy prices: Who will ultimately benefit?

For energy importers, a sharp rise in energy prices represents a negative supply shock, raising inflation while reducing economic activity and household wealth. This shock is exacerbated by the fact that the short-run price elasticities of energy are low, so the price shock strongly affects firms' and households' budgets. In the longer run, however, there are mechanisms which make it possible to reduce the energy intensity of economic activity. Using the example of crude oil and natural gas, this article shows that the energy intensity of economic activity drops sharply during periods of high energy prices. In the short run, growth in energy prices benefits energy-exporting countries. In the long run, periods of high energy prices lead to a drop in energy consumption, as a result of which net energy exporters carve out a smaller portion of energy importers' GDP.