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Crude differences: The changing global energy order

A new Petroleum Economist graphic shows which countries have done nicely in the high-oil-price era – and which haven't. It's a snapshot of the changing global order, explains Derek Brower

Energy map of the world

WHERE did all the money go? Mortgage lenders in the US gave cheap temporary deals to risky house buyers. By the time these mortgages became too onerous for the homeowners to service, the IOUs had been sold to Wall Street's investment banks, exposing some of these august firms. Some went under, some were bailed out.

Credit dried up internationally. Consumer spending dropped. Global growth slowed. Ballooning deficits suddenly threatened to cripple economies. Some countries went into recession. Bond markets pounced on weakness. Governments spent heavily on stimulus programmes and financial bail outs, printing money to devalue their currencies and deflate their debts. And when the tide went out, Western economies were found trouser-less on the beach. China was seen waving at everyone from a superyacht anchored a mile offshore.

That's the most common potted explanation of where the global economy went sour and where we've ended up. When the credit evaporated, it became clear that once-healthy economies had really just been jacked up on the credit drug.

But this interpretation tends to ignore the oil price. And it was the other big economic force that weighed on the world's economy in the years before 2008. It's the force that threatens it again now.

For all the talk of China's emergence as an oil-importing heavyweight, the bulk of global consumption still comes from the rich countries of the OECD. This will change in the coming decade, says the International Energy Agency (IEA). But, in the run up to the oil-price spike of 2008, Western oil consumers were still in charge.

This matters because, in macro-economic terms, Western countries spend cash. Big oil-producing nations tend to save it. So the colossal transfer of money from buyer to seller as oil prices soared in 2008 was a capital flow that went from low-saving to high-saving economies. In 2008, Saudi Arabia's saving rate, as a percentage of GDP, was more than 52%, according to the World Bank. In the US, by contrast, it hovered around 13% during the years of the oil-price surge. The data are similar for other countries: big oil exporters sock their money away. Big oil buyers spend it.

So if you want a picture of falling liquidity, consider this: between 2005 and 2008, calculated analysts at CIBC World Markets, a 500% rise in the cost of crude – twice the size of the spike in the oil shocks of 1973 and 1980 – yielded a $200bn jump in the US' annual oil import bill. For the OECD as a whole, the fuel bill rose by $0.7 trillion in that period. About $400bn of that went straight to Opec.

Through the lens of the oil price

The graphic below looks at the world's economy through the lens of the oil price. Petroleum Economist took the average price from 2007, 2008 and 2009 – the years that cover the spike, the collapse and the start of the oil-price recovery – and calculated the oil export-import balance of every country involved in the game. (Each of the world's nations consumes oil; but only the ones below import crude.) We calculated the average annual GDP growth for each of these countries, too.

On the left, you'll find the countries that have done well from the oil price. Saudi Arabia's position will surprise no one. Nor should anyone be shocked to find the US, the world's greediest oil consumer, on the right.

But the sums involved should give pause for thought. Saudi Arabia, Russia, Iran, the UAE, Nigeria and Venezuela between them sucked in more than $1.7 trillion in oil receipts in the period. The six consumers with the biggest oil bills, by contrast, sent more than $1.8 trillion in the other direction. That's an enormous wealth transfer.

Look at the GDP-growth figures and something else becomes clear. Oil-export wealth didn't translate necessarily into a healthy economy, with the obvious exception of Qatar and its tiny and affluent population. (Only two of the 11 fastest-growing economies are in Opec.) But oil-import paucity undermined the biggest consumers, with the exception of India and South Korea. In short, industrial, manufacturing and raw non-oil-exporting prowess yielded growth – with China in the vanguard.

For Westerners it all adds up to a worrying picture. OECD oil consumption may go into slow stagnation, believes the IEA. But the need for it in these economies isn't going to disappear any time soon. Meanwhile, the rapid growth of demand in Asia – 57% from China alone in the next 25 years, says the IEA – will help support prices. Western economies will keep sending money to oil producers, with little influence over the price and, therefore, no control over the size of the cheque they write each year.

Petrodollars

Click here to access a PDF of the graphic

 

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