Crude Expectations

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The dramatic 55% fall in crude oil prices in the past year has brought clear benefits to oil importing nations, which include the US and most of the European Union (bar Norway) and Asia (bar Malaysia). Governments have been able to cut oil subsidies (e.g India, Indonesia and Egypt) and alleviate fiscal pressure, energy-intensive manufacturers’ input costs have shrunk and consumers are enjoying a tandem fall in petrol pump prices and heating bills.

But there’s a tendency to over-emphasise the direct boost from lower oil prices to global and country-specific consumer spending and growth. Falling oil prices are not the panacea to structural and cyclical deficiencies in global growth – a point that IMF Managing Director Lagarde eloquently made yesterday (Three “Rosetta Moments” for the Global Economy in 2015).


Losers and winners of lower oil price

Perhaps the simplest way to measure the net benefit or cost of lower oil prices to a country is to estimate the rise or fall in the USD-value of its net imports or exports of oil, as a percentage of GDP. To that effect the Wall Street Journal wrote an excellent article on 8 December 2014, ranking the change in net oil imports or exports for 180 countries.  I have adjusted these data to factor in the further 25% fall in crude oil prices since the article’s publication (any errors are my own).

At this stage I would flag a number of possible statistical shortcomings to this approach. First, it does not take into account price or substitution effects – when prices fall, demand for energy and specifically crude oil may rise, thereby eroding some of the costs/gains of lower oil prices. Furthermore, it focuses on crude oil and omits other hydrocarbons, such as natural gas, which are significant net exports for Russia, the Middle East and North Africa, Canada, Norway and the Netherlands and significant net imports for Japan, Korea and EU member states. The price of natural gas, down about 20% in the past year, tends to move directionally with crude prices, even if the correlation is far from perfect. As a result, my approach may underestimate the costs and benefits from lower crude and gas prices.

Nevertheless, it is a good starting point to draw a number of broad conclusions.


1.The fall in crude oil prices has cut oil exporters’ revenues by about $850bn and benefited net oil importers by a similar amount – equivalent to only 1.2% of world GDP. It’s ultimately a transfer of wealth from oil exporters to oil importers, rather than the creation of new wealth per se. Whether it boosts global growth depends, amongst other things, on whether the rise in consumption and investment in oil importing countries outweighs the fall in consumption and investment in oil exporting countries. Evidence suggests that there is a degree of dissaving in oil exporting countries to smooth out spending and investment.


2.In USD terms, the bulk of the benefits accrue to a handful of large, net-oil importing countries. The US, China and Japan account for about 40% of the fall in the USD-value of net imports. Similarly Saudi Arabia, Russia and the UAE account for about 40% of the fall in the USD-value of net exports (see Figure 1).


olivier desbarres crude 1

Figure 1: A handful of countries account for the bulk of the USD costs and benefits of lower oil prices.


3. On a country basis, where the percentage-of-GDP figure arguably matters most, the most startling observation is that only a handful of major economies, mostly in Asia, directly benefit significantly from a fall in crude oil prices[1]. Singapore stands out, with an estimated fall in net imports of 8.5% of GDP. Conversely, the biggest losers are spread across Africa, the Middle East and a handful of smaller exporters (Timor and Azerbaijan).



Figure 2: The main significant beneficiaries of lower oil prices are Asian economies


4. For most major economies, including the US, China, Germany, France, Italy, the UK, Australia and Brazil the fall in the USD-value of net imports is quite modest – below 2% of GDP – and they are omitted from Figure 2. This suggests, in my view, that it is unrealistic to expect falling crude oil prices to single-handedly relaunch lacklustre economic growth in Germany, France, Italy and Brazil and arrest the slide in Chinese and Australian growth.



Figure 3: European and oil-exporters’ currencies have weakened sharply


Figure 4: UK pump price falling far more slowly than crude price











Consumer spending may remain sticky

Again there is a tendency to over-estimate the rise in consumer spending associated with lower oil prices, in my view.

  1. Weaker local currencies – EUR/USD is down 14% for example in the past year – means that most consumers don’t enjoy the full USD-fall in oil prices (see Figure 3).
  2. Oil companies are typically quick in raising pump prices, slow in cutting them.
  3. The price of crude is only one input in overall pump price. Other input costs, such as refining and transportation, tend to be more constant.
  4. Governments cut subsidies while maintaining a high tax component on pump prices. The UK is a case in hand, with the fuel duty and VAT now accounting for about 70% of the pump price. These four factors are clearly at play in Figure 4.
  5. Consumers may save a share of this price windfall, particularly in the context of meagre real wage growth and uncertain growth outlook.


Olivier Desbarres currently works as an independent commentator on G10 and Emerging Markets. He is a former G10 and emerging markets economist, rates and currency strategist with over 15 years’ experience with two of the world’s largest investment banks.

[1] I have intentionally omitted from this analysis small economies such as Armenia, Jamaica, Kyrgyzstan, Seychelles and Djibouti which benefit very significantly from lower crude oil prices.



Figure 1 – Wall Street Journal, US Energy Information Administration,

Figure 2 – Wall Street Journal, US Energy Information Administration,

Figure 3 –

Figure 4 – AA, US Energy Information Administration

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