I am a big fan of the FT. But occasionally, it lets me down. Today for example.
The Lex column argues that there is no petrodollar "mystery" because there are no petrodollars circulating through the international financial system. The oil windfall has been spent, not saved. According to Lex, 88% of OPEC's $1021 billion in oil export revenues between the end of 2001 and the end of the first half of 2005 have been spent on imports, only $125 billion have been saved.
So are there only $125 billion in petrodollars circulating through the international financial system, maybe $150 billion if you bring the data up to date through the end of 2005?
Sorry guys. Not even close.
Lex seems to have compared OPEC's oil exports to its total imports.
Far better to look at OPEC's total exports and compare them to OPEC's total imports. Or still better, use OPEC's current account surplus.
Remember, OPEC includes countries like Indonesia. In 2004, its oil exports were $11.2 billion, its non-oil exports were $60.6 billion. The Emirates also exports lots of non-oil goods; not because it makes them, but because Dubai is a hub of sorts. OPEC's total exports were about $150 billion larger than its oil exports in 2004.
Plus, some countries also have significant investment income from the investments they made last time oil was high. That shows up in the current account data.
And what does the current account data tell us? Simple: there are far more than $125 billion, or even $150 billion, in petrodollars out there.
OPEC's cumulative current account surplus between 2002 and 2004 was $274 billion. In 2005 will add another $200 billion, easy. Probably far more. Saudi Arabia alone ran a $87 billion current account surplus in 2005. The low end estimate for the "petrodollars" that are were added to the world's financial system since the end of 2002 should be $574 billion.
That's a pretty big difference. And I would bet $575 billion is a bit too low.
The 2002, 2003, 2004 and 2005 current account surpluses of Saudi Arabia sum up to $179 billion - more than the FT's total.
Russia isn't part of OPEC, but its 2002-2005 current account surplus (assuming a $20 billion q4 2005 surplus) sums up to $206 billion. (data here)
Add up the IMF's estimated current account surplus for the commonwealth of Independent States (Russia and Central Asia) and the Middle East. That total gives a slightly better estimate of the oil "surplus" than the OPEC data. OPEC includes Indonesia and excludes Russia - which no longer makes sense. Russia is a huge oil and gas exporter now; Indonesia is a net oil importer or close to it.
Between 2002 and 2005, the IMF estimates the cumulative current account surpluses of the Commonwealth of Independent States/ Middle East will reach $633.6 billion. And they expect another $395 billion surplus in 2006 - which would bring the cumulative addition to the world's stock of "petrodollars" by Russia, Central Asia and the Middle East since the end of 2001 to $1 trillion. (data- here)
$1 trillion in Chinese reserves, most added since the end of 2001. $1 trillion in cumulative current account surpluses in the main oil exporting regions of the world since 2001. And, in 2006, a close to $1 trillion US current account deficit. I am comparing stocks and flows, but there is still a strange symmetry.
UPDATE: Want graphs that show what I am talking about? Look on pages 4 and 5 of the BIS report on petrodollar flows. The data on the euro/dollar split of OPEC and Russian deposits in the international banking system caused a stir back when it was released, but the real story of the report is that the available data doesn't allow us to know the currency composition of OPEC's savings surplus. See p. 5 in particular. But the BIS leaves no doubt that there has been a surge in "saved" petrodollars recently -- despite the Lex column's (silly) argument today.