[lit-ideas] Re: Peak Oil - More disturbing than OBL
- From: Teemu Pyyluoma <teme17@xxxxxxxxx>
- To: lit-ideas@xxxxxxxxxxxxx
- Date: Mon, 10 Apr 2006 07:03:13 -0700 (PDT)
One thing about oil is that it is connected with
pretty much everything. There is a school of thought
that the fact that dysfunctional goverments in
Middle-East simply don't collapse is because they can
by their way out of trouble with petro-dollars.
Speaking of which, there is no IMF research out that
highlights their role in financing US current account
deficit. Brad Setser writes:
> But for all the attention paid to China, the biggest
pool of spare savings is found not in Asia, but in
countries sitting on large underground resevoirs of
black gold. The combined current account surplus of
the world's oil exporters is immense. It is quite
likely -- no one really knows because of data issues
-- that the oil exporters collectively have displaced
China's central bank as the largest source of
financing for the US current account deficit. And
outgunning a country whose reserves increased by $250b
(adjusted for valuation) isn't easy.
> The IMF has access to more data than anyone else.
And Saleh Nsouli of the IMF's Paris office puts it to
good use. I cannot think of a better assessment of how
surging oil prices have influenced the global balance
of payments.
> Nsouli highlights how oil exporters now have about
as large a savings (current account) surplus as Asia.
> "While Asia's current account surplus is projected
to have risen to US$341 billion in 2005 (equivalent to
47 percent of the United States' current account
deficit), that of oil exporters is projected to have
reached US$296 billion (equivalent to 41 percent of
the United States' current account deficit). Relative
positions are expected to reverse in 2006. According
to IMF projections, oil exporters' current account
surplus would amount to 46 percent of the U.S. deficit
in 2006, while the figure for Asia would drop to 41
percent." <
To which I have to add that the reason to worry about
this isn't that say Saudis would use these reserves
for political purposes, which would be suicidal, but
that:
> The challenge will come when the oil exporters start
spending rather than saving. Or more accurately,
whenever, oil prices stop rising faster than oil
spending, so oil states' total savings surplus starts
to fall. <
http://www.rgemonitor.com/blog/setser/123466/
Now Gulf States (and Russia) export to Asia, Europe
and USA, but import mainly from Asia and Europe. The
scary scenario that is quite possible is this: their
oil revenue drops for some reason, like Iran war
disrupting shipments, dropping demand due to increased
energy efficeny, whatever. They still have to pay the
huge import bill which is often in currencies other
than dollar, so they will start consuming instead of
adding to their dollar reserves. This will lower the
value of dollar, while increasing the price of the oil
barrell, which is in dollars. Together with the rising
interest rates this slows US economy, leading to
greater dollar depreciation, leading to OPEC nations
dumping more dollars... And on top of that the Chinese
Central Bank can either (a) drop the peg to the USD
which will slow their exports both to the USA and to
the Gulf, (b) allow their currency the depreciate with
USD which will raise their oil export bill... If a,
the dollar will depreciate further.
This would lead to considerable economic
unpleasantness all over the world, but what I really
worry about is what it would do to the Middle-East?
Saudi-Arabia for example has a huge unemployment
problem as it is, same with Iran. Egypt isn't much
better.
Yours,
Teemu
Helsinki, Finland
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