The recent sharp increase in oil prices, triggered by the devastating hurricanes that hit the U.S. Gulf Coast in August and September, will adversely affect the global economy over the long term, U.S. Federal Reserve Board Chairman Alan Greenspan said Tuesday in Tokyo.
"Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy pries will undoubtedly be a drag from now on," Greenspan said in a speech to business executives that focused on energy issues.
"In the United States, Japan, and elsewhere, the effect on growth would have been greater had oil not declined in importance as an input to world economic activity since the 1970s," the Fed chief said.
Even before Hurricanes Katrina and Rita shut down oil platforms and refineries, world oil markets had been experiencing tight conditions due to increased demand and constraints to production capacity, according to Greenspan.
He also said the average improvement in the global supply-demand situation for oil will be limited, as more efficient utilization of oil resources in such countries as the United States and Japan and emerging economies in Asia is being offset by high consumption in China.
"Presumably, recent oil price increases will accelerate the pace of displacement of energy-intensive production facilities," Greenspan said.
He predicted oil will eventually be overtaken by less-costly alternatives well before conventional oil reserves run out, similar to the way oil displaced coal as a main energy source.
The transition, however, will take time, he warned.
Greenspan, in Tokyo for a two-day visit, delivered Tuesday's speech at a meeting organized by the Japan Business Federation (Nippon Keidanren) and two other business groups.