Washington, August 1 : A new policy report released by Rice University's Baker Institute for Public Policy in the US has suggested strategies to ensure global energy security.
The report is titled "The Global Energy Market: Comprehensive Strategies to Meet Geopolitical and Financial Risks-the G-8, Energy Security and Global Climate Issues."
"Sharp changes in energy prices are having dramatic effects on the stability of the global economy," the report stated. "Threats to the global energy market could have dangerous corresponding impacts on the world financial system," it added.
According to Mahmoud El-Gamal, Rice professor of economics and a scholar at the Baker Institute who helped write the report, "Petrodollar flows play a major role in the current credit-bubble dilemma."
The excess liquidity that resulted from the run-up in oil prices after 2003 partly fueled the subprime mortgage crisis.
While the money coming from East Asia also played a role, El-Gamal noted that the outflow from Saudi Arabia and Kuwait now rivals that from China.
The Baker Institute report calls for international coordination to avoid a "global meltdown."
It said that "Countries with dollar-denominated assets need to cooperate to find a transition path that weans the United States from foreign credit and foreign oil while, at the same time, moves emerging economies away from excessive export-oriented dependence on US consumption."
Asian consumers need to reduce their savings rates while US consumers need to increase theirs, according to the report.
In addition, "it also will require expanded effort to find additional options to increase the capacities of Middle East energy-exporting countries to absorb petrodollar inflows through investment in appropriate forms of human and physical capital," it said. The report also weighs threats to the global energy market.
It analyzes several of the leading risks that have contributed to the recent dramatic rise in fuel prices, including the debate over Iran's nuclear program, Europe's heavy dependence on Russian natural gas, the rise of resource nationalism in Latin America and the effect of international terrorism or climatic events on oil facilities, among others. It argues that, taken individually, many of the risks that have contributed to higher energy prices may be less catastrophic than they seem at first glance and have, in some cases, actually eased over the last year.
It concluded that dire predictions that markets cannot alone allocate the costs of these risks in a manner that would avoid wars among major nations are unfounded.
The Baker Institute report suggested several approaches to deal with the challenges posed by today's world energy market.
It calls for diversification of energy sources, greater energy efficiency - especially higher automobile fuel-efficiency standards and greater refinery capacity.