For the first time ever, the combined emerging markets of China, India, Russia and the Middle East will consume more crude oil than the United States (Bloomberg via 2point6billion). These are projections, but what’s surprising is the way in which the impact of an expected American economic contraction will be offset by continued growth in the emerging markets. Consider that in 2001, the American recession led to a twenty-five percent drop in crude oil prices, to roughly $20 a barrel. Contrast that to 2008, when the price is expected to rise to $120 before the end of the year.
The U.S. still consumes twenty-four percent of the world’s crude which, while down from twenty-six percent seven years ago, still makes it far and away the most oil-thirsty nation, both in absolute terms and by per capita measures. To get an idea of the kind of massive transfer of wealth that’s taking place, in the last five years, we’ve spent roughly $525 billion on the Iraq War (in direct appropriations). Meanwhile, Russia is getting ready to spend roughly twice that ($895 billion) on upgrading its transportation infrastructure over the next seven years. So in 2015, when we’ll be pinching pennies to carry the longterm costs of the War (which Joseph Stiglitz has put as high as $3 trillion), Russia’s economy will be benefitting from infrastructure upgrades, largely on the basis of its energy revenues.
But as Nikolas Gvosdev notes, not all the money stops in the energy-producing countries. They go on to spend it in China, Korea, Japan, and Germany, among other industrial producers. Besides the fact that we’re both directly and indirectly subsidizing China’s increased consumption, we’re also subsidizing Germany’s complicated energy dependence on Russia. Leading Gvosdev to wonder whether the Bucharest NATO summit isn’t the sign of things to come.
Update: On the subject of oil, Peter Kiernan’s article on the myths and realities of energy independence went up on the WPR front page after I posted this, and it’s worth a read.