October 4, 2005

Oil Producers Gain Global Clout From Big Windfall

Fund, major oil producers are now a bigger source of funds for the world than China, Japan and the rest of Asia, which has been the dominant saver.

"The impact is presumably larger than the Asians' on global interest rates," says David Robinson, deputy head of research at the IMF.

And today oil producers are earning more than they ever have. In 2005, according to IMF data, oil-exporting nations are expected to earn $383 billion from overseas sales of oil and gas -- nearly twice the inflation-adjusted value of the previous peak, $197 billion in 1980.

Estimates of the total windfall generated for all oil producers world-wide since prices began soaring in 2003 vary. Leo Drollas, chief economist at the Centre for Global Energy Studies in London, estimates consumers will pay $1.2 trillion more in 2004 and 2005 together for oil products than they did in 2003.

Just since the start of this year, oil prices are up nearly 51%. Yesterday, crude oil for November delivery on the New York Mercantile Exchange settled down 77 cents at $65.47 a barrel.

To be sure, the oil price boosts -- and huge transfer of wealth to oil producers -- are causing some pain. Britain's government, blaming in part high oil prices, recently said its economy is likely to grow only around 2% this year, down from its earlier forecast of 3% to 3.5%.

Some of this kind of investment is in the pipeline. Saudi Arabia, the world's No. 1 exporter, has been eager to diversify its economy away from oil, for instance, so it is investing $30 billion to become a leading producer of petrochemicals by 2010. At the same time, with demand for oil so high, the Saudis have earmarked $50 billion to expand production of crude oil and natural gas.

And the temptation to spend is building. Saudi Arabia in August approved a 15% pay increase for all state workers. Russia, the No. 2 oil producer, has saved most of its oil earnings in a special stabilization fund held by the central bank, but in recent months authorities have approved billions of dollars in new social and other spending.

Even residents in No. 3 exporter Norway, long known for frugal management, last month voted out a conservative government in favor of one promising to spend more on welfare and other programs.

Throughout the Middle East, where economies outside the oil sector remain underdeveloped, many nations are undertaking big road, utility and factory projects. Many of these developments are being handled by foreign contractors and built with foreign equipment. That has fueled a boom in exports of machinery and services to the region, primarily from the U.S. and Europe, also helping offset the global impact of the oil-price surge, economists say.


[Diverging Fortunes]

[Oil Boom]

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