The Slick Wealth Shift

In the United States, the rising bill for imported petroleum lowers consumer savings rates, adds to inflation, worsens the trade deficit, undermines the dollar, and makes it more difficult for the Federal Reserve to balance its competing goals of fighting inflation and sustaining growth.

High prices have given a boost to oil-rich Alaska, which in September raised the annual oil dividend paid to every man, woman and child living there for a year to 1,654, an increase of 547 from last year.

With crude oil prices flirting with 100 a barrel, there is no end in sight to the redistribution of more than 1 per cent of the world8217;s gross domestic product. Earlier oil shocks generated giant shifts in wealth and pools of petrodollars, but they eventually faded and economies adjusted. This new high point in petroleum prices has arrived over four years, and many believe it will represent a new plateau even if prices drop back somewhat in coming months.

8220;There8217;s never been anything like this on a sustained basis the way we8217;ve seen the last couple of years,8221; said Kenneth Rogoff, a Harvard University economics professor and former chief economist at the International Monetary Fund. Oil prices 8220;are not spiking; they8217;re just rising8221;.

The benefits, to the tune of 700 billion a year, are flowing to the world8217;s oil-exporting countries. Two of those nations 8212; Iran and Venezuela 8212; may be better able to defy the US because of swelling oil revenue. Venezuela has used its oil wealth to dispense patronage around South America. And Iran could be less vulnerable to sanctions designed to pressure it into giving up its nuclear programme or opening it to inspection.

The world8217;s biggest oil exporter, Saudi Arabia, is using its oil riches to build four cities. Russia, the world8217;s No. 2 oil exporter, shows oil8217;s impact in the political as well as the economic realm. When Vladimir Putin came to power in 2000, less than two years after the collapse of the ruble and Russia8217;s default on its international debt, the country8217;s policymakers worried that 2003 could bring more financial crisis. As Putin nears the end of his second term, the soaring price of oil has helped allow Russia to increase the federal budget tenfold since 1999 while paying off its foreign debt and building the third-largest gold and hard-currency reserves in the world, about 425 billion.

The result: Russia is trying to reclaim former Soviet republics as part of its sphere of influence. Freed of the need to curry favour with foreign oil companies and Western bankers, Russia can resist what it views as American expansionism, particularly regarding NATO enlargement and US missile defense in Eastern Europe, and forge an independent approach to contentious issues like Iran8217;s nuclear programme.

But many economists have called petroleum reserves a bane, saying they enable oil-rich countries to avoid taking steps that would diversify their economies and spread wealth more equally. Russia, for example, has rising inflation, soaring imports and a lack of new investment in the very industry that is fuelling the boom. The problems are worse in Nigeria, which is battling an insurgency that has curtailed output in the oil-rich Niger River Delta.

Newly oil-exporting countries such as Sudan and Chad and the companies operating there 8212; including Malaysia8217;s Petronas and France8217;s Total 8212; are winners. Sudan8217;s capital, Khartoum, is booming, with new skyscrapers and five-star luxury hotels, despite US and European sanctions aimed at pressuring the country to halt attacks against people in the Darfur region.

Oil-importing countries face their own challenges. Last year, Senegal8217;s budget deficit doubled, inflation quickened and growth slowed. In China, the government increased domestic pump prices on October 31 by nearly 10 per cent amid shortages, rationing and long lines throughout the country. Violence broke out at some gas stations as scarcity of diesel fuel even hit China8217;s richest cities 8212; Beijing, Shanghai and trading ports on the east coast.

Highly developed consumer nations have been better able to adapt. In Japan, which relies on imports for nearly 100 per cent of its fuel, nearly everyone is a loser 8212; with the big exception of Toyota. Yet Japan has been weaning itself off oil for years. It now imports 16 per cent less oil than it did in 1973. Billions of dollars were invested to convert oil-reliant electricity-generation systems into ones powered by natural gas, coal, nuclear energy or alternative fuels.

Meanwhile, analysts said, Europeans buying oil priced in dollars are finding the rising prices somewhat cushioned by the strength of their currency. The value of the dollar has been sliding to record lows against the euro.