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High Oil Prices Push Giant Shifts in Wealth, Power

Steve Mufson - Washington Post

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WASHINGTON — High oil prices are fueling one of the biggest transfers of wealth in history. Oil consumers are paying $4 billion to $5 billion more for crude oil every day than they did just five years ago, pumping more than $2 trillion into the coffers of oil companies and oil-producing nations this year alone.

The consequences are evident in minds and mortar: anger at Chinese motor-fuel pumps and inflated confidence in the Kremlin; new weapons in Chad and new petrochemical plants in Saudi Arabia; no-driving campaigns in South Korea and bigger sales for Toyota hybrid cars; a fiscal burden in Senegal and a bonanza in Brazil.

In the United States, the rising bill for imported petroleum lowers already anemic 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.

$700 billion a year

With crude oil prices flirting with $100 a barrel, there is no end in sight to the redistribution of more than 1 percent of the world'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.

The benefits, to the tune of $700 billion a year, are flowing to the world's oil-exporting countries.

Here is a look at how oil prices are affecting selected countries:

•Iran and Venezuela, two oil-exporting countries, may be better able to defy the Bush administration 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 program or opening it to inspection.

•Saudi Arabia, the world's biggest oil exporter, is using its rejuvenated oil riches to build four cities. Projects like these are designed to burnish the country's image, develop a non-oil economy and generate enough employment to maintain social stability.

•Russia, the world's No. 2 oil exporter, shows oil's transformational impact in the political as well as the economic realm. As Vladimir Putin nears the end of his second term as president, 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 government is much stronger, much more self-assured and self-confident," said Vladimir Milov, head of the Institute of Energy Policy.

•Newly oil-exporting countries such as Sudan and Chad are winners. Sudan's capital, Khartoum, is booming, with new skyscrapers and luxury hotels, despite U.S. and European sanctions aimed at pressuring the country to halt attacks against people in the Darfur region. Chad's government has used some of its oil revenue to buy weapons rather than develop the country's economy.

•In China, the government increased domestic pump prices Oct. 31 by nearly 10 percent amid shortages, rationing and long lines throughout the country. Violence broke out at some gas stations, including an incident last week in Henan province in which one man killed another who had chastised him for jumping to the front of the line.

•Highly developed consumer nations have been better able to adapt. In Japan, which relies on imports for nearly 100 percent of its fuel, nearly everyone is a loser. Yet Japan has been weaning itself off oil for years. It now imports 16 percent less oil than it did in 1973, though the economy has more than doubled. Japan now accounts for 48 percent of the globe's solar-power generation — compared with 15 percent in the U.S. The adoption rate for fluorescent light bulbs is 80 percent, compared with 6 percent in the U.S.

A Japanese winner is Toyota. Soaring gasoline prices have buffed the image of the hybrid Prius and its other fuel-efficient models, such as the Camry and Corolla. Although stagnant in Japan, sales were strong in North America, Europe and emerging markets.

•Britain's national average gasoline price topped 1 pound per liter, or about $8 a gallon, for the first time this week because of record oil prices. "But there is very little publicity about it — you don't see many headlines saying, 'Oil at all-time record high,' " said Chris Skrebowski, editor of Petroleum Review, published by the Energy Institute in London. "It's different from the United States. Here, everyone has just accepted that it is expensive."

•In Brazil, South America's largest economy, high oil prices have had a different political effect. Last year, the country became a net oil exporter, thanks to major increases in domestic oil exploration and the country's broad use of sugar-based ethanol as a transport fuel.

http://www.chron.com/disp/story.mpl/headline/biz/5291806.html