from Follow the Money

And the money keeps rolling in …

July 27, 2006

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Russia’s reserves are up $12.3b in the first three weeks of July.    Expect a $15b increase this month.  I like to check on Russia because it reports its reserve growth on a regular basis (unlike some; the Saudis haven’t released their end June data) and because it has a ton of oil and gas.   So it is decent proxy for the growth in oil state foreign assets.  Reserve growth is the sum of the current account and capital account, and Russia does not attract private inflows.  But let's asume the current accout explains the entire $15b expected July increase.

Russia accounts for roughly a quarter of the total production (around 40 mbd) of the main oil exporting regions and countries.   The US and China obviously produce some oil of their own, but they are equally obviously net importers of oil.   Russian exports are substantially lower than its production, but it also exports a lot of gas.   So it isn’t a bad proxy for the oil exporting world. 

Multiplying Russian reserve growth by four consequently generates one estimate for the increase in the foreign assets of the big oil exporters.    $60 billion is real money.    Some of it shows up in central bank reserves, some of it is hidden in the offshore accounts of the big state oil companies, some shows up in various countries (non-reserve) oil investment funds and some is hidden in offshore accounts of other kinds. 

There is another way to get a $60b estimate.    Assume that the oil states are spending producing 40 mbd for export, selling that oil at $75 and spending $25.   $25 is actually about right for spending – budgets haven’t been adjusted up.     Some spend more, but some still spend less.   40 mbd*30 days*$50 net savings per barrel = $60b a month.

How did I get 40 mbd in oil exports?  From the supply and demand data in this IEA report, I calculated that Russia and Central Asia (the former Soviet Union) exports a bit over 8 mbd, the Middle East and Latin America (OPEC+non-OPEC Middle East + non-OPEC Latin America) export around 29 mbd and Africa produces 4.1 mbd – and probably exports a good chunk of it (I didn’t find African consumption numbers).  It works out to around 40 mbd. 

And that leaves out Norway.

$60b a month for these countries may be a slight overestimate.   But $50b a month certainly seems realistic.    

Either sum dwarfs China’s reserve growth.   Though the fact that China is adding $20b to its reserves a month and running a $15b a month current account surplus even as its oil import bill soars is a big part of the global story.  But that is a topic for another post.

Right now, the flow of savings from oil states to the world (and one assumes, from oil states to the US via various intermediaries) dominates the global flow of capital.  

I suspect Martin Wolf is right: the size of the oil surplus has (temporarily) increased the size of the sustainable US current account deficit.

And I suspect these oil-state flows also have something to do with London’s emergence as the global financial center par excellence.   London is physically a lot closer to the big oil exporters than New York.   It doesn’t have all of the United States political baggage.  And the UK never has worried very much about taxing oil money moving through London …

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