While Americans wince as they fill up their SUVs with
$2-a-gallon gasoline, market forces are smiling on the Saudi
Arabias and Exxon Mobils of the world.
A transfer of wealth of historic proportions is taking place as
worldwide spending on oil is expected to grow this year by about
$295 billion, or 27 percent, compared with 2003, according to
government data. Consumers and businesses are paying substantially
more for gasoline, heating oil, diesel and other products derived
from crude as demand and prices surge.
While the corresponding windfall of profits for oil exporting
nations and petroleum companies is sapping strength from the
international economic recovery, it’s not causing the kind of
financial shock that followed the oil crises of the 1970s.
Still, experts warn that the market constraints underlying high
and volatile energy prices suggest that higher oil price could be
here to stay. “There’s not a consensus out there, but
the question is being asked more now than it has been at any time
in the last 20 years,” said Jim Burkhard, director of global
oil at Cambridge Energy Research Associates in Cambridge, Mass.
Rising oil costs are linked as much to America’s apparent
drive-at-any-price car culture and China’s raging industrial
expansion, as they are to the world’s unusually thin supply
cushion, a condition that has magnified anxieties about potential
supply disruptions in Venezuela, Russia and Nigeria.
Consumption continues to rise in spite of higher prices that are
expected to slow global economic growth by about 0.5 percent in
2005. Much sharper financial pain will be felt in poor, developing
countries that are net oil importers.
“As with most things, the global impact is not spread
evenly around the world,” said Jeffrey Lewis, manager of
international finance research at The World Bank. Lewis predicted
that, without emergency funding, much of the organization’s
$2.5 billion aid to struggling nations this year will have to be
reallocated to fuel purchases by local governments, leaving health
and education programs grossly underfunded or scrapped
With oil futures marching to the $55 a barrel level this month
— up from about $30 a year ago — the list of winners is
topped by Saudi Arabia, Russia, Norway, Iran, Venezuela and other
leading exporting nations. Saudi Arabia alone supplies about 12
percent of the world’s daily oil fix.
Exxon Mobil Corp., Royal Dutch/Shell Group and the rest of the
private petroleum giants are also flush with cash as profits and
stock prices soar. The same goes for oilfield services firms such
as Schlumberger Ltd. and Baker Hughes Inc., as well as the
countless smaller providers of the equipment, ships and workers
needed to produce and transport some 82 million barrels a day.
The extra $295 billion spent on oil this year comes courtesy of,
but not without complaint from, motorists, homeowners,
manufacturers, airlines and truckers. The biggest share would come
from (no shocker here) Americans, who account for nearly one
quarter of global daily oil demand.
United States consumers are expected to shell out an additional
$40 billion this year just to heat their homes and fuel their cars
and trucks. The greatest financial squeeze is felt by low- and
fixed-income families, who spend about three times as much of their
wealth on energy as do middle-income families.
European economies are generally worse off, with the prospects
for rising inflation and unemployment in the region somewhat
higher, according to a report by the International Energy Agency
and the International Monetary Fund.
European countries do not have as much of their own oil
production as the United States, where roughly 2 out of every 5
barrels consumed is pumped domestically.
To keep consumption in check, European nations levy
significantly higher fuel taxes than the United States, which helps
to explain why the total imports of Germany, France, Italy and
Spain are about a third smaller than America’s. Even so, the
four countries combined will spend about $25 billion more for oil
in 2004 than they did in 2003. In Germany, Europe’s largest
economy, experts are worried that the country’s nascent
financial turnaround could falter next year, in part because of
higher energy prices, but also because of an indirect oil-price
pinch as exports to China and the United States taper off. This
comes at a time when Germany’s unemployment rate is around 10
percent and consumer demand has barely risen in three years.
In Asia, the picture is somewhat mixed.
In China, where daily oil imports have risen an estimated 35
percent, or roughly 700,000 barrels a day, and have helped propel
global demand and prices to unexpectedly high levels, the rising
cost of fuel is merely contributing to a minor slowdown of the
country’s economic boom. Put another way, mammoth industrial
growth is dwarfing any negative impact caused by higher energy
In Japan, the country’s near-total dependence on imports
is offset significantly by the economy’s relatively high fuel
efficiency. But like Germany, it is very concerned about the
weakening financial power of its trading partners due to soaring
East Asian countries are likely to be hit harder, according to
the Asian Development Bank, which recently predicted the
region’s growth would decline by 0.8 percent in 2005.