I haven't been remiss about refining the cost of war calculations (table, LHS), but did get caught up in a fascinating paper on Pareto optimal income distributions (fun, eh?).
TRANSFER OF WEALTH TO OIL PRODUCING NATIONS, GRATIS
The rise in the world oil price creates a wealth transfer from oil net importers (including the US) and oil net exporters. Below are some estimates of what that impact might look like, although feedback (e.g. trade) effects and knock-on (multipliers) effects I have not estimated yet. I hope to.
THE DETAILS
For reference, the estimates assume a "normal" refiners' acquisition price of $25. I think that is high enough to provide insulation against the argument that marginal lifting costs might be higher today than in the past. The calculation then uses 33% of the premium to that price as attributable to increased world tensions (political risk) and the loss of marginal oil supply from Iraq. The rest is assumed to be other factors, like perceptions of short-term capacity constraints and rising demand from China. The five-year price of oil is agnosticly assumed to be $55.
A WORD ABOUT THE FUTURE
Of special importance, in this case, is the 5-year projection. Few expect a stable outcome in Iraq in this timeframe (certainly the futures markets for oil do not). Only in the case of a stable outcome (Iraq secured by Iraqis AND governing itself) would one expect the oil price to normalize and perhaps even fall, on the expectation of Iraqi supply. In the case that the US abandons Iraq to a civil war or a regional conflict, a 7-10 year projection with an even greater price impact might be apt.
Top World Oil Net Importers, 2005* | ||||
| Rank | Country | Net Oil Imports (bbl/d B) | Current war impact ($B) | 5-yr Proj ($B) |
|---|---|---|---|---|
| 1) | United States | 12.4 | $171 | $287 |
| 2) | Japan | 5.2 | $72 | $121 |
| 3) | China | 3.1 | $43 | $72 |
| 4) | Germany | 2.4 | $33 | $56 |
| 5) | South Korea | 2.2 | $30 | $51 |
| 6) | France | 1.9 | $26 | $44 |
| 7) | India | 1.7 | $23 | $39 |
| 8) | Italy | 1.6 | $22 | $37 |
| 9) | Spain | 1.6 | $22 | $37 |
| 10) | Taiwan | 1 | $14 | $23 |
| Non-US Total: | $285 | $480 | ||
| *Table includes all countries that imported at least 1 million bbl/d in 2005. | ||||
Top World Oil Net Exporters, 2005* | ||||
| Country | Net Oil Exports | Current ($B) | 5-yr Proj ($B) | |
|---|---|---|---|---|
| 1) | Saudi Arabia | 9.1 | $125 | $211 |
| 2) | Russia | 6.7 | $92 | $155 |
| 3) | Norway | 2.7 | $37 | $63 |
| 4) | Iran | 2.6 | $36 | $60 |
| 5) | United Arab Emirates | 2.4 | $33 | $56 |
| 6) | Nigeria | 2.3 | $32 | $53 |
| 7) | Kuwait | 2.3 | $32 | $53 |
| 8) | Venezuela | 2.2 | $30 | $51 |
| 9) | Algeria | 1.8 | $25 | $42 |
| 10) | Mexico | 1.7 | $23 | $39 |
| 11) | Libya | 1.5 | $21 | $35 |
| 12) | Iraq | 1.3 | $18 | $30 |
| 13) | Angola | 1.2 | $17 | $28 |
| 14) | Kazakhstan | 1.1 | $15 | $26 |
| 15) | Qatar | 1 | $14 | $23 |
| Non-US Total: | $550 | $925 | ||
| *Table includes all countries with net exports exceeding 1 million barrels per day in 2005. | ||||
link: Bootstrapping Andrew Sullivan
