“The United States, once the world’s largest producer and still its largest consumer, must import half of its oil supply, weakening its overall strategic position and adding greatly to an already burdensome trade deficit – a precarious position for a great power” (Yergin 14). So said Daniel Yergin in the prologue of his 1990 bestseller The Prize: The Epic Quest for Oil, Money, and Power. Today, oil retains its importance in the hydrocarbon societies of developed and developing countries as a major engine of economic growth, but the story is not so simple. When Yergin wrote The Prize, the United States seemed to be on an inevitable path toward instability and crisis as domestic reserves, long depleted, forced oil imports and exports around the
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Both of these emerging market economies experienced growth in import levels that seem completely uncorrelated with the volatile ups and downs of oil prices. As rapidly developing countries that highly prize oil as a tool for industrialization, this is likely attributed to highly inelastic demand that results in high imports regardless of what is happening in the market. This aggressive demand is evident in China and India’s share of total global oil imports over the period, as seen in Figure 4: China’s share rose from 6.24% in 2003 to 15.7% in 2011, an increase of over 150%, and India’s share rose from 6.18% in 2003 to 10.4% in 2012, a nearly 70% increase. For the developed countries in the group, mostly in the Eurozone or East Asia, what was established earlier holds true: the suppliers’ reluctance to sell at low prices outweighs the buyers’ eagerness to buy at low prices. The European and developed Asian economies generally see a steady decline in oil imports from 2003-2012, and some like France and Japan see a somewhat sharper decline at the time of the recession, but the overall effect of oil price is largely …show more content…
The United States has the highest current account deficit in the world, peaking in 2006 at $806.7 billion USD. From a trade balance in the 1990s, the deficit grew steadily until 2006, after which it rapidly shrank to $380.8 billion in 2009, a fall of 53.8%, and has since grown a bit again at a much slower rate, ending at about $450 billion from 2010 through 2012 (Figure 9). This trend is consistent with economic logic, which predicts that the current account will move toward deficit during expansionary years as imports outstrip exports and toward surplus during contractionary years as imports are forced to fall. The move toward trade balance during the recession years reflects this, especially since the currency weakens after 2009. A weak currency has a strong impact on the current account, driving the relative prices of domestic goods down while making imports relatively more expensive. Since the current account evaluates the difference between total exports and imports, it can be expected that movements in the current account deficit will mimic movements in oil import levels assuming the export and import levels of other goods do not change. From Figure 9, this is clearly true; the current account deficit follows oil imports extremely closely. This is a surprising finding, since the real world does not actually hold all else equal, and fuel imports on average account for less than a fifth of total American
Both of these emerging market economies experienced growth in import levels that seem completely uncorrelated with the volatile ups and downs of oil prices. As rapidly developing countries that highly prize oil as a tool for industrialization, this is likely attributed to highly inelastic demand that results in high imports regardless of what is happening in the market. This aggressive demand is evident in China and India’s share of total global oil imports over the period, as seen in Figure 4: China’s share rose from 6.24% in 2003 to 15.7% in 2011, an increase of over 150%, and India’s share rose from 6.18% in 2003 to 10.4% in 2012, a nearly 70% increase. For the developed countries in the group, mostly in the Eurozone or East Asia, what was established earlier holds true: the suppliers’ reluctance to sell at low prices outweighs the buyers’ eagerness to buy at low prices. The European and developed Asian economies generally see a steady decline in oil imports from 2003-2012, and some like France and Japan see a somewhat sharper decline at the time of the recession, but the overall effect of oil price is largely …show more content…
The United States has the highest current account deficit in the world, peaking in 2006 at $806.7 billion USD. From a trade balance in the 1990s, the deficit grew steadily until 2006, after which it rapidly shrank to $380.8 billion in 2009, a fall of 53.8%, and has since grown a bit again at a much slower rate, ending at about $450 billion from 2010 through 2012 (Figure 9). This trend is consistent with economic logic, which predicts that the current account will move toward deficit during expansionary years as imports outstrip exports and toward surplus during contractionary years as imports are forced to fall. The move toward trade balance during the recession years reflects this, especially since the currency weakens after 2009. A weak currency has a strong impact on the current account, driving the relative prices of domestic goods down while making imports relatively more expensive. Since the current account evaluates the difference between total exports and imports, it can be expected that movements in the current account deficit will mimic movements in oil import levels assuming the export and import levels of other goods do not change. From Figure 9, this is clearly true; the current account deficit follows oil imports extremely closely. This is a surprising finding, since the real world does not actually hold all else equal, and fuel imports on average account for less than a fifth of total American