Credit Suisse analysts James Sweeney and Axel Lang say that the dramatic slump in the price of crude oil will lead to a massive shift in wealth from oil producers to oil consumers.
In research published on Wednesday, they argue that the recent oil price drop means we have just witnessed the sixth big “regime shift” in crude since OPEC was formed in the early 1970s.
While slumping crude prices can be detrimental to an oil-importing economy in the short-term, thanks to cuts in energy-related investment, Sweeney and Lang reckon that this particular price fall will eventually end up boosting US and even global growth quite significantly.
The reasoning is simple.
Oil-importing countries pay for oil by borrowing from foreigners, selling assets or cutting spending.
As the importers spend money to buy crude, oil exporters accumulate foreign assets (through sovereign wealth funds) or spend money on non-energy related imports (Ferraris, construction materials for shiny new buildings).
Because the US has run constant oil deficits since the 1970s, there has been a large and steady accumulation of claims on the US by oil exporters. Assessing “causation” from one source of trade to the general balance of payments or net investment trends is a dangerous thing, but the straightforward observation that there has been a massive outflow of wealth from the United States as a result of its constant energy deficits is undeniable.
As the price of oil falls the historic dynamic between importers and exporters is reversed, resulting in a not-insubstantial wealth transfer to countries like the US.
In fact, by Credit Suisse estimates the cumulative sum of energy deficits is 50 percent of U.S. GDP, or a whopping $9 trillion.
