Brad Setser

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Don’t cry for Saudi Arabia

by Brad Setser
September 4, 2008

The recent fall in oil prices seems to have caused a wee bit of trouble at a few commodity hedge funds.

But it is important to keep the fall in perspective. If oil stays around $110 for the rest of the year, the sweet light stuff should average about $112-113 dollars in 2008, about $40 a barrel more than it averaged in 2007. If it slides to around $100, oil will still average close to $110 dollars this year, or almost $40 a barrel more than in 2007.

I did some very ballpark math to calculate the annual increase in oil export revenues associated with oil price moves since 1990. To keep everything simple, I assumed the big oil exporters exported a constant 40 mbd during the entire period. I know that is wrong, but I don’t have an “net oil exports of the big oil exporters by month” (or even by year) going back to 1990 readily available. It isn’t wildly off though, and it tells the story well. A $112 average oil prices means the oil exporters should have about $500 billion more than in 2007. That is probably a bit low, as I suspect net oil exporters of the big oil exporters are now a bit over 40 mbd (oil experts, please chime in!)


And just to be clear, despite the chart’s title, the chart shows the estimated change in oil export revenues for all oil exporters, not just the Saudis.

Incidentally, the oil exporters probably now need an oil price of around $70 a barrel to cover their import bill, so $500 billion plus isn’t a bad estimate for their combined current account surplus — or for their official asset growth — in 2008. I’ll be interested to see the IMF’s estimate of this in the WEO.

The Saudis don’t have a thing to worry about it oil stays at its current level. They can spend more at home and buy more assets abroad. And Abu Dhabi can continue its current spending (oops, investment) spree — and make sure the world knows that Abu Dhabi, not Dubai, has the real cash. Like Landon Thomas, who recently wrote “Abu Dhabi has sometimes seemed jealous of Dubai’s ability to draw attention to itself,” I get a sense that the al-Nahyan family got tired of seeing all the talk of big “Dubai” wealth funds . Abu Dhabi certainly hasn’t been trying to hide its wealth recently — which is something of a change. It also calls into question why Abu Dhabi continues to avoid disclosing ADIA’s size. The argument that Abu Dhabi doesn’t want to attract too much attention doesn’t really cut it these days.


  • Posted by Cedric Regula

    There is an OPEC production meeting sometime this month, and I’ll be interested in seeing what they do as far as settings the new production quota.

  • Posted by Dave C.

    Mike Whitney: The United States current account deficit is roughly $700 billion. That is enough “borrowed” capital to pay the yearly $120 billion cost of the war in Iraq, the entire $450 billion Pentagon budget, and Bush’s tax cuts for the rich. Why does the rest of the world keep financing America’s militarism via the current account deficit or is it just the unavoidable consequence of currency deregulation, “dollar hegemony” and globalization?

    Michael Hudson: As I explained in Super Imperialism, central banks in other countries buy dollars not because they think dollar assets are a “good buy,” but because if they did NOT recycle their trade surpluses and U.S. buyout spending and military spending by buying U.S. Treasury, Fannie Mae and other bonds, their currencies would rise against the dollar. This would price their exporters out of dollarized world markets. So the United States can spend money and get a free ride.

    MW: Economist Henry Liu said in his article “Dollar hegemony enables the US to own indirectly but essentially the entire global economy by requiring its wealth to be denominated in fiat dollars that the US can print at will with little in the way of monetary penalties…..World trade is now a game in which the US produces fiat dollars of uncertain exchange value and zero intrinsic value, and the rest of the world produces goods and services that fiat dollars can buy at “market prices” quoted in dollars.” Is Liu overstating the case or have the Federal Reserve and western banking elites really figured out how to maintain imperial control over the global economy simply by ensuring that most energy, commodities, and manufactured goods are denominated in dollars? If that’s the case, then it would seem that the actual “face-value” of the dollar does not matter as much as long as it continues to be used in the purchase of commodities. Is this right?

    Michael Hudson: Henry Liu and I have been discussing this for many years now. We are in full agreement. The paragraph you quote is quite right. His Asia Times articles provide a running analysis of dollar hegemony.


  • Posted by Cedric Regula

    Still it only works because surplus countries agree to play the game.

    In the case of the Saudi Royal Family, I can almost understand why they play the game. The government got a 500% to 600% dollar price increase on oil and the buck dropped 30%. Wish I could do that. As a result of pegging to the dollar they have 10% or more inflation, but have been spreading around more of the oil wealth. If anyone complains about inflation, they can just say its because everyone has so much more money. Works on Americans, so why not Arabs.

    The only thing I can’t figure is they are supposed to have a guestimated near trillion in US assets accumulated since the 70’s, so getting 30% whacked off that must hurt. Then again maybe they don’t even notice.

  • Posted by Freude Bud

    Projected net oil exports worldwide for 2007 were 46,839 kb/d, so you’re not far off. It is possible, by the way, to get net oil exports going back to 1990 via the EIA, but they don’t keep the record quite that way, so it would be a pain in the butt.

    There are some other issues that may be causing some concern in Riyadh driven by oil price. For example, most of the Middle East are net food importers.

  • Posted by bsetser

    Freude — any help on how to shift through the EIA data would be appreciated; the BP data is another option. I can turn annual into monthly relatively easily …

  • Posted by thor

    speaking of data, where analysts find all this historic numbers like british inflation in the 70s, japan oil consumption in 60s, housing and stock bubbles all over the world through 20th century etc…

  • Posted by bsetser

    consistent data for a single nation is easier to find that consistent data that aggregates different nations.

  • Posted by RebelEconomist


    I believe there are useful economic history databases at, but I cannot seem to get at that website right now.

  • Posted by crystalloids

    I will dearly love to see the oil price stay at a more realistic level.

  • Posted by Freude Bud

    “bsetser Says:

    Freude — any help on how to shift through the EIA data would be appreciated; the BP data is another option. I can turn annual into monthly relatively easily …”

    Oh, sorry, just saw this question.

    Well, the problem is mostly that net exports aren’t really kept as a category for all countries, as far as I know at the EIA.

    The easiest way is what I guess would be called implied exports. Take the data for consumption, (IEA World Petroleum Consumption 1980-2005) and subtract it from the data for production.

    For 2006 and 2007, you will have to go through each country profile individually via the EIA’s country page. Some countries are not really in there (usually because their production and consumption numbers are very small … sometimes because they are new countries, like East Timor. East Timor is a pain.)

    Obviously, there is the difficulty of the former Soviet Union / Yugoslav countries etc. if you want to look to earlier than 1991, but it’s doable.

    This doesn’t consider stock changes, but given the total guesstimate character of most oil data outside of the US, it probably doesn’t matter all that much. At least I don’t think it does.

    The IEA or BP might have net export data parceled out in a simpler fashion, but I’d have to look, and my guess is they don’t. It would be fairly simple, I think, to get from the IEAs Beyond 20/20 program (for up to 2005) … but be warned their numbers will conflict with the EIA’s and BP’s … and OPEC’s etc etc etc.