Morgan Stanley On The Real "Oil Bill"

How much does surging oil sap away from the economies of big global importers?

Maybe not as much as you think, if only because a substantial share of this “oil bill” comes back in the form of imports to big exporters.

Here’s the maths from Morgan Stanley’s Spyros Andreopoulos:

 The income transfer from oil-importing economies to oil-exporting economies – the ‘oil bill’ – is substantial. For this year, at current prices of crude the bill amounts to around US$2.4 trillion, or 3.7% of oil-importing countries’ combined GDP, on our estimates. Yet, with exporters spending around half of their oil revenue on imports from oil-importing economies, the net income transfer over time, though still sizeable, is much smaller. Oil shocks thus destroy less demand than is commonly thought. In turn, the part of the income transfer not spent will be saved. A large part of these savings will end up
on international asset markets. On current oil prices, a rough estimate suggests that around US$1 trillion of this year’s oil revenue – roughly equivalent to the entire flow of US net private saving, or around 2% of global equity market cap – could be in search of assets to buy. We calculate that with a US$140/barrel average price of oil for this year, the gross income transfer would be 4.5% of importing economies’ combined GDP. Were this price to persist for the whole of next year, the global economy would end up in stagflation on our global economics team’s forecasts: inflation would be around
1pp higher than in our baseline for this year and the next, while real GDP growth would be 1pp lower than in our baseline for both years. 

imports

Photo: Morgan Stanley

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