Petro Exporters 1-0-1

As a self-proclaimed ECB watcher I usually spend some time reading the bank's monthly bulletin which is an excellent source of information and data on the Eurozone but also, as it were, on other corners of the world. The July edition (huge PDF (200 pages!) so watch out) is just out and between the statistical data and summarizing comments we find a very interesting article on the key structural features of the oil exporting countries (pp. 75-86). Clearly the article takes a big sweeping look at the topic of petroexporting countries and if you want to skip the intro I can recommend Brad Setser and Morgan Stanley's Serhan Cevik (stay tuned at the GEF for Cevik's more or less regular notes) for the more gory details on the workings and structural characteristics of the region's economies. However, as a place to start the article from the ECB is much worth while and consequently here are some snippets ...

This article reviews key structural features and recent economic developments in ten major oil exporting countries. It also analyses imports of and financial flows originating from oil-exporting countries, which are often described as oil revenue recycling. Oil-exporting countries have benefited from high oil prices over recent years, which has been reflected in higher real GDP growth and fiscal and current account surpluses, while the adverse impact of high oil prices on oil-importing
countries has been mitigated by oil revenue recycling. Economic developments in oil-exporting countries and oil revenue recycling via the trade and the financial channel have become an increasingly important feature of the global economy. Accordingly, these countries have played an enhanced role as trade partners and as investors since the rise in oil prices that began in 2003.


The ten oil-exporting countries under review – while differing with regard to many structural features – have hydrocarbon-centred economies and have benefited from high oil prices over recent years. This is reflected in higher real
GDP growth rates since 2003 and large fiscal and current account surpluses. At the same time, inflationary pressures have emerged in some countries, while they have remained subdued in others. Higher oil revenues have led
to an increase in imports, an accumulation of financial assets and a reduction of public debt, and are increasingly also used for more public spending, in particular on infrastructure. The high oil prices of recent years have per se tended to dampen growth and increase inflation in oil-importing countries, although the oil dependency of advanced economies, in
particular the euro area, has been reduced compared with the 1970s and early 1980s. The adverse economic impact of high oil prices is mitigated, however, by oil revenue recycling via the trade channel, which seems to benefit mainly Asia and to a lesser extent the euro area through higher exports to oil-exporting countries, and via the financial channel, which
benefits mainly the United States through higher capital inflows from oil-exporting countries. As a result, oil-exporting countries have become more important for the global economy in recent years, both as trade partners and as investors.

Note especially the concept of re-cycling of the oil revenues to which this article takes a rather artificial, I think, objective position. As such, the re-cycling of oil revenue through the financial channel is of course directly related to the managed currency regimes in the region and in this way it is a bit stark to call the US the main 'beneficiary' of capital inflows as if the petroexporters were actually doing the US a favor. Clearly, some may see it as such but re-cycling through the financial channel clearly also serves a distinct monetary purpose from the point of view of the region's monetary policy authorities. Another point is of course the extent to which oil revenues could be 'recycled' into the domestic economies and how this, as a result of the peg, is fuelling asset markets (i.e. the cranes of dubai). Of course, the monetary policy itself puts a lid on this since a fixed amount of the revenue needs to be used to support the Dollar and the US current account deficit, especially in the current environment where the pressure is increasingly mounting against the Dollar.