Magazine article Economic Trends

Petrodollars

Magazine article Economic Trends

Petrodollars

Article excerpt

The price of oil has risen fairly steadily, from $20 per barrel in 2002 to $60-$70 this year. Although oil prices are setting new records, the real price of a barrel of oil--the price after stripping out the effects of inflation--remains well below the record reached in late 1979. This inflation adjustment, together with greater energy efficiency, helps to explain why the recent round of energy-price hikes has not hit oil importers as severely as in the late 1970s and early 1980s.

Nevertheless, higher oil prices and a rising, price-insensitive demand for crude have recently increased the real export revenues of oil-producing countries more sharply than at any time in the past, according to International Monetary Fund (IMF) estimates. Real export revenues reached $763 billion last year, more than double the revenues just three years earlier. How the oil-exporting countries recycle their petrodollars--oil is priced and traded in U.S. dollars--can have important implications for how the world adjusts to oil-price shocks.

Oil-exporting countries are spending a smaller share of their export revenues on imports than before, even though a much larger portion of the current oil-price run-up may prove to be permanent. For example, the IMF estimates that OPEC is currently spending 24% of each additional oil dollar, compared with 4296 between 1978 and 1981, and 52% between 1973 and 1975. Moreover, oil producers are currently buying a smaller share of their overall foreign imports from the U. …

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