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Dallas Fed's Economic Letter examines oil prices and economic freedom

For immediate release: April 27, 2006

DALLAS—High oil prices are the result of a lack of economic freedom in countries with large oil reserves, rather than an impending depletion of world oil resources, according to the latest issue of the Federal Reserve Bank of Dallas' Economic Letter.

In “Running on Empty? How Economic Freedom Affects Oil Supplies,” director of energy economics Stephen P.A. Brown and economics writer Richard Alm point out that more than half the world's oil reserves are in countries that engage in state control of the oil industry. Two-thirds of the world's oil reserves are found in countries that rank as â??unfreeâ?? or â??repressedâ?? on the Heritage Foundation's measure of government intervention in the economy.

â??Because of the mismatch between reserves and economic systems, today's oil prices are higher than they would be in a world of free markets,â?? the authors write.

They note that conventional oil resources and tar sands should provide an ample supply for the next 60 to 70 years. Unconventional resources, such as shale oil, will greatly extend the time horizon at which we run out of oil.

The April 2006 issue of Economic Letter can be found at www.dallasfed.org.

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Media contact:
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