Free exchange

Petrodollar profusion

Oil exporters are the main drivers of global imbalances

See article

Readers' comments



In the meantime, Wall Street is destroying the capital of the Sheiks by investing it in shale gas which is selling at 20% of its real price (all costs included). It is the beauty of capitalism...


Above all the British Mideast Protectorates (and Dictatorships) invest $ billions in the U.K... Even Gordon Brown called them in 2008 to invest in Britain so Britain could add some liquidity. The pro-British Dictatorships of the Mideast (U.A.E., Kuwait, Qatar, Oman, Saudi Arabia) do the right thing and accept to share part of their wealth. In other case (Iraq, Libya) they will be invaded and sacked. So, they know what they have to do.


The Arabs own money they do not have. The money is stored over seas, controlled by the City and Wall Street. While a few sheiks sit in their luxury yachts, the bulk of the population gets little out of their nation's wealth. They sit around buying stuff from government hand out while producing nothing in return. Their oil is drilled by Exxon and Shell. Their infrastructure is run by expats. Their houses are built by Indians and cleaned by Filipinos. There is no manufacturing, no product innovation, no scientific research, no culture output, just consumption, Islam and more consumption.

J5PREPVzCK in reply to rep3

You're only 95% correct... Islam doesn't play a part in their governance. If it did, these oil producers would be complete social welfare states, which is what Islam mandates.

bradshsi in reply to rep3

I'd mostly agree although as with most broad generalizations it falls apart a bit when you look at individual countries.

For example Oman has a more open environment and hence more innovation.

Saudi Arabia's ARAMCO has significant internal expertise and does plenty of drilling, but outside of that relatively small pool of well educated people, you have a a noticeable lack of innovation.


The Gulf States of the Middle East with their large cash surpluses, relatively small populations, and sunny weather should be one of the leading R&D centers of the world. Students should be going there from across the globe (or at least the Muslim world) and making break throughs in medicine, chemistry, biology, IT, and other hard sciences. They could easily support some of the finest universities in the world, and fund them over the long term.

But because this would require them to open up their society, treat woman more equally, and make other needed reforms. Thus the world is starved of their innovations.

Imagine what could be accomplished......

bradshsi in reply to happyfish18

I don't notice anyone invading Saudi Arabia recently and yet native R&D and innovation is at a low level. So you can't blame invasion for all the ills of the region.

Actually the abiding image of Saudi Arabia can be summed up when one flys into or out of Dammam airport. It is a truely wretched place, a symbol to the lack of desire to grow and innovate (beyond petrodollars).


Depending on the level of the conversation, and who is having the conversation, in the US, people worry about the trade imbalance with China because it backs the idea nothing is "made" in the US anymore. Although we have plenty of oil, at this point we must import it, so there is not much that can be done about it (from the view of people having the conversations). However, energy independence is talked about all of the time. People also probably equate oil with Saudi Arabia, and in the US news there are usually headlines about their purchase of US arms in the billions, and therefore people think that it is balanced.
Trade imbalances are not one parties fault. If everyone was like China or Germany (export reliant), then no one could be like China or Germany just like if everyone was like the US and the UK (import reliant) then no one could be like the US and UK. For historical reasons, certain countries have tended to be export or import based, and these have a lot more to do with policies and a lot less to do with culture than we think. (Almost all countries have gone back and forth from creditor to debtor, so one country is not inherently either one) US and UK policy leaders, as the global hegemons saw that it was in their best interest to allow trade imbalances during the cold war in order to unify non-communist economies and bring them into the "global capitalist order". Countries that the US had more power over because it defeated them during WWII were turned into export Juggernauts and bastions of capitalism. (They were also easy to do this because they obviously had an industrial base, but this could have easily been destroyed). Asia was the "hottest" sphere of the cold war and also where the US used economic policies the most in order to combat the Soviet Union. China was encouraged to join the "west" "capitalist" however you want to say the US side against the Soviets, and access to American markets was a key part of that.
Domestic politics in the US ensure that whatever countries the US is running trade deficits with, will be at best looked up to as the next superpower / ultra competitor and at worst demonized. However, once a candidate actually becomes President they realize that the overall maintenance of the global system is worth the trade deficit.
This does become a problem because it is not sustainable if not turned around, and as the US, and to a lesser extent the UK continue to loose power in relative terms and in economic relative turns, they will be less able to afford to prop up "the system" and less inclined to do so. How other countries step up to the task will be interesting. Most have made great rhetoric in taking aim at the decline of the US and Europe and the role those countries played in the financial crisis which is worrisome. However, some, including China have made great strides at reorienting their economies to rely more on domestic demand and less on unsustainable exports. And as they say actions speak louder than maybe there is hope.

happyfish18 in reply to simdon76

Adjusting for inflation, the adjusted Oil price is cheaper than 30 years back. The Gulf does not have other resources for the future. Nor it has a big population to spend the money it received although individually they tend to splurge on overseas trip and building harems in some excessive cases. The backlash is the majority of people yearn for a simpler uncomplicated uncorrupted life back in the days of the Golden Caliphates which is now the main cause for the Clash between Civilizations.


According to the 11th Panchen Lama, the cause of the Greediness in the heart can be attributed to the "Materialistic Technology" developed in modern societies to consume excessively thus leading to Wars, Climate changes, changes in Earth ecology, destruction of the environment etc. Controlling oil resources and its transportation in other countries has been the main source of conflicts between the Hegemonic West and the rest of the world.


How has oil, and energy resources become so important, almost exclusively important in our lives?
Our relationship with oil and other main energy resources is very similar to our relationship to banking and financial institutions.
A sector that should have remained simple means for our lifestyle, has become the object of desire, and the main pillar our our world as a result of our excessive, constant growth, expansive economic model.
If we look at recent military interventions, national or international conflicts they are usually about oil, and the rest of our global crisis is about banking.
Everything is upside down, powerful financial institutions and oil providers are holding the whole world at ransom.
There is no superficial solution to this, although we might not even need to work out a solution since it is coming by itself.
Our present lifestyle, based on excessive, unnecessary and harmful overproduction and over consumption is coming to an end, since it is unnatural and unsustainable.
The present global crisis is signaling the end of the road for this socio-economic model which is built on a very sophisticated mass marketing hypnosis, building fake, artificial desires in people for goods they simply do not need, never even dreamed of, but now "have to" purchase for money they do not have. For this we need credit of course, and for the overproduction we need excessive energy consumption.
Whether we want it or not the crisis, more precisely system failure will return us to necessity and resource based consumption, but if we let it happen naturally it will happen through a lot of suffering, in a very unruly, unpredictable manner.
We could go ahead of things and start changing ourselves, our attitude, lifestyle, while we are still at least partially in control of the events.
We still have time, although not much...

engineer_sci in reply to ZGHerm

Ominous words ZGHerm! I wish that you were just a scaremonger, and that I meant "ominous" in a cynical manner. But you aren't, and I didn't -- too many facts out there support your words.

At the equivalent point in the operation of a computer mainframe or a motor vehicle, trained operators would recognize a mass of danger signals are flashing at them from all sectors. They would immediately shut down operation before crashes would result in catastrophic hardware damage, and/or loss of possibly irreplaceable data or life, respectively.

The problem with the international economy is that experts in the field are largely being ignored because there are too many people in the financial and political arena who have been quite enjoying the ride. They have a pretty good grasp of what is going on (oh, they do indeed hear the experts -- they're not stupid enough not to want to know the objective facts for themselves). However, they live with a dangerous fantasy that they will keep the ride going till over the precipice, and they will jump off with a golden parachute. But even if the they time it right, and the chute doesn't hit a snag, the rest of the world will be waiting at the bottom as hungry, and angry, alligators.

But really, unlike the computer or vehicle analogies we can't just follow the old title, "Stop the world, I want to get off." We are going to have to work the problem in real time, adjust into a reality economy that only produces what is necessary -- even a bit to the comfort level -- and deals with the facts that we are actual up to 90% plus overcapacity in industrial production, service, and in jobs. Based upon this, we can bite the bullet early and start working on a strategy for work sharing and in general learning to develop -- with societal environmental support -- a general view of mutual concern, responsibility, and guarantee. In the end of the matter, we could have a relatively comfortable transition (at least with no more pain than we've already experienced) to a new world with eased work hours and free time for pursuit of deeper family societal or spiritual values -- or at least some more enjoyable use of time than useless raping of the planet, scraping t climb over one another, or spending endless hours in the frustrating entropy of trying to find full employment.

As per ZGHerm, we'll have a functional machine in the end, but it would be a lot more pleasant if we start before having to be pulled by paramedics from under the wreck (especially as there won't be any).

happyfish18 in reply to ZGHerm

In fact, derivatives trades organised by Banksters in cahoot with the FED have created artificial extreme price swings creating uncertainties in the market and, hence generally push up prices and reaping a derivatives uncertainty premium for the Banksters and other hedgefunders participating in commodity trades. What Bernarke fears most is not cheap dollars but expensive Gold prices that threaten to bring back the Gold standard for trades.

AB ve

To me, the conclusion is that oil consuming nations should invest in renewable energy and electric cars.

happyfish18 in reply to AB ve

Is polluting land, water and sacrificing the health and livelihoods of local residents to get the resources from the earth to produce wind turbines, electic cars a better alternative, I wonder.

Richard Michael Abraham


Oil prices will be part of the crash.

But, it's the U.S. Treasury Issues, junk by any standards.

Interest rates are held down by FED Bernanke.

Everything wants to sink but can't!

Everyone is holding on for the Presidential elections.

If President Obama wins, then more unsustainable deficits, more FED Bernanke money printing, more inflation, no jobs.

If Candidate Romney wins, he will not be able to fix the damages fast enough of the two former presidents, Bush and Obama.

President Bush corrupted the system and destroyed the Housing Market and Middle Class. President Obama engineered with FED Bernanke and Secretary Geithner a false economy build on sand e.g. stimulus, monetary policy, money printing, and socialistic leanings.

On November 7th, 2012, or shortly thereafter, expect a 30% drop in the Stock Market while oil prices rocket.

The World economy - in deep trouble.


Richard Michael Abraham
The REDI Foundation


I think Nigeria is going to be running a deficit which is not what is shown on the chart. In fact, the government is planning on borrowing some money to make up for the deficit.

This is courtesy Dr Okonjo-Iweala that the Economist so feted.

While other oil exporting countries are corrupt, Nigeria takes it to whole new level. 6.8 bn dollars worth of scam in a year (a quarter of the budget was lost to fake oil marketer through subsidy which Okonjo Iweala subsidised).


As long as we keep buying oil (consumption), the sellers will buy assets from us. Soon there will be nothing left to sell but our unborn children.

PPP Lusofonia

...and the leg bone is connected to knee bone...
Yes, current account balances are inter-linked, since no one is exporting to Mars, yet, as famously said in an earlier Economist article.
Diverging large CAB surpluses and large CAB deficits are both unsustainable, and require commercial banks to recycle the surplus "petrodollars", lending from the net exporting countries to net importing countries. When the avalanche of surplus money is too large, the surplus country bankers get sloppy about credit risk management, their (im)prudential central bank regulators turn a blind eye, and the resulting credit bubbles eventually burst when the net borrowers inevitably collapse.
And then, the net exporting-creditors SHOULD suffer a drastic haircut to their asset values, to rebalance and converge the CAB balances back to ZERO.

If each $20/barrel represents an oil-shock, we are in the 5th oil- shock in as many decades, but who's counting...
Shock it to me ...


So the premise of this article is that spending is far better for the global economy than investment...

Therefore those oil-rich sheikhs should be spending our oil $s on Hummers and jewelry (rather than purchasing T-Bonds and stocks).

And the root cause of this situation is not our huge oil consumption ... brilliant :)

goat in the living room

That is very fun to hear Economist saying that "China is responsible" or "Arabs are responsible" for global imbalances. As far as I know, an imbalance has two sides.

Why not to think instead that "US and EU 'consumption-and-waste-patters' are the ones responsible for global imbalances"? And one can also add they are also responsible "for environmental problems", "drug-dealing crimes", "weapons of mass destruction", etc.

In fact, these OPEC dictators like to spend lavishly on arms to perpetuate their rule and dynasty. Blair, Andrew, Sarkozy, Berlusconi etc. have induced Gaddafi to buy arms to safeguard his regime. Yet they came in to raze everything and the Libyans are now reduced to begging again for funds to reconstruct.

Speculating is a full time job

I'm afraid the article lacks enormous details and calculations on non-OPEC oil producers like Mexico, Canada, and other countries whose oil lubricates the engines of all countries. It should also be noted that the turmoil in the middle east between some long established monarchies, governments and theocracies may face a point of no return from which these rulers will not have the ability to stop the changing demands of Arab cultures who desire better opportunities for economic growth.

My money is on America any time of the day over a wealthy soveriegn country whose primary revenue is oil exports, because at the very least America has a diversified economy, then their is the American engineering sprit which time after time proves relentless in solving and improving the future. New biotech startups are emerging that will eventually replace OPEC oil in the long run and they know it, thus Irans ambition with nuclear energy.

I'm no IMF or Worldbank economist but account balances are balances that can eventually revert themselves a great example is the German machine.



Products and events


Take our weekly news quiz to stay on top of the headlines

