If the country that led the world into recession also must lead the way back to stable growth, oil exporters must act soon to lower the price of crude oil.
It’s intuitive that a recent surge in oil prices threatens the world’s halting recovery. The extra burden spreads ominously through economies, which can’t cut oil use proportionately.
A recent report from the Centre for Global Energy Studies in London takes the analysis beyond those surface truisms, focusing on the world’s largest oil-consuming country and epicenter of the global financial meltdown of 2007.
CGES worries about the part of the US balance of payments called the current account, which, the think tank points out, is in “perennial deficit.”
The current account includes exports and imports of goods and services, the net of which is the trade balance, plus earnings from overseas investments and current transfers. Other elements of the balance of payments are the capital and financial accounts.
In 2009, CGES says, the US current-account deficit was $378 billion. Of that, net oil imports accounted for $215 billion.
The group cites a forecast that the country’s current-account deficit will have risen to $494 billion in 2010 before climbing to $549 billion in 2011. It projects the net oil-import contributions to those deficits at $273 billion in 2010 and $317 billion in 2011.
Because the import rate is barely rising, most of those expected oil-related pushes to current-account deficits come from rising oil prices.
If nothing else changes, the increased deficits imply lower economic growth. They can create currency depreciation in the absence of countervailing capital inflows. With US indebtedness to foreigners already high, more debt would lift interest rates, creating capital losses for current bondholders and slowing economic recovery.
Members of the Organization of Petroleum Exporting Countries can ease this multitiered threat to the US financial system and, by extension, global economy, by producing more oil to lower the price. They have enough spare capacity. Most of it’s in Saudi Arabia.
(Online Jan. 3, 2011; author’s e-mail: firstname.lastname@example.org)