Price rise will affect trade flows

Oil importers will see deficits grow: report

Soaring oil prices may depress growth in the industrialized world but also create a US$230billion bonanza for oil exporters this year, boosting growth and markedly changing global investment flows, a report says.

Ted Carmichael, chief Canadian economist at J. P. Morgan, estimates net oil revenues for 19 oil exporting countries will soar US$230-billion to US$780-billion in 2005, based on oil at US$65 per barrel. The windfall is equivalent to about 7% of their total gross domestic product and would help boost their growth rate to about 5% from 4.5% last year.

The group, including Canada, Saudi Arabia, Russia, Venezuela , Algeria, Kuwait and Indonesia make up almost 10% of global gross domestic product.

“Everybody thinks the money is going into a black hole and it just lowers global growth but it’s actually boosting growth in the countries that are getting all that money,” Mr. Carmichael said.

“ It won’t fully offset [ the drag],” Mr. Carmichael said.

“Some of these countries that have a lot of oil but not a lot of population are not in a position to spend all the money that’s coming in — a lot of the Gulf states, OPECmembers Saudi Arabia, and United Arab Emirates and Qatar.”

Countries with larger populations such as Canada and Russia will see a lot of their oil dollars recycled into imports, boosting global growth. Still, the United States, the euro area and Japan will all suffer.

Mr. Carmichael said five countries will receive almost 60% of this year’s windfall: Saudi Arabia, Russia, Norway, UAE and Kuwait.

Net oil revenues are expected to rise to US$36-billion in Canada this year and US$40-billion next year from US$28-billion last year.

In countries with big industrial bases, higher energy prices will lead to business investment, government spending, tax reductions or debt repayment.

But countries with limited industrial bases tend to import capital goods, business services and consumer goods and send a good chunk of their petro-dollars abroad.

Import demand from oil exporters is expected to rise by about US$130-billion this year. Exports to OPEC alone, from the U.S., the E. U. and Japan, are projected to rise 20%.

The flow of oil will also change the flow of money.

Big energy importers like the United States will see their current account deficits increase further because of pricier oil.

Emerging Asia, which has racked up big surpluses on consumer goods exports to the West will see those surpluses shrink as it too sucks in dearer oil. But the surpluses will be bulging among oil exporters.

Mr. Carmichael estimates the combined current account surpluses of the oil exporters will reach $315-billion this year, surpassing $195-billion in emerging Asia.