Cheaper oil：Winners and losers

America and its friends benefit from falling oil prices;its most strident critics don’t.

In early October the IMF looked at what might happen to the world economy if conflict in Iraqcaused an oil-price shock. Fighters from Islamic State (IS) were pushing into the country'snorth and the fund worried about a sharp price rise, of 20% in a year. Global GDP would fall by0.5-1.5%, it concluded. Equity prices in rich countries would decline by 3-7%, and inflationwould be at least half a point higher.

IS is still advancing.Russia, the world's third-biggest producer, is embroiledinUkraine.Iraq,Syria,Nigeria and Libya, oil producers all, are in turmoil. But the price of Brentcrude fell over 25% from 115 abarrel in mid-June to under 85 in mid-October, before recoveringa little. Such a shift has global consequences. Who are the winners and losers?

The first winner is the world economy itself. A 10% change in the oil price is associated witharound a 0.2% change in global GDP, says Tom Helbling of the IMF. A price fall normally boostsGDP by shifting resources from producers to consumers, who are more likely to spend theirgains than wealthy sheikhdoms. If increased supply is the driving force, the effect is likely to bebigger—as in America, where shale gas drove prices down relative to Europe and, says the IMF,boosted manufactured exports by 6% compared with the rest of the world. But if it reflectsweak demand, consumers may save the windfall.

Today's falling prices are caused by shifts in both supply and demand. The world's slowingeconomy, and stalled recoveries in Europe and Japan, are reining back the demand for oil. Butthere has been a big supply shock, too. Thanks largely to America, oil production since early2013 has been running at 1m-2mbarrels per day (b/d) higher than the year before. Otherinfluences are acting as a brake on the world economy. But a price cut of 25% for oil, ifmaintained, should mean that global GDP will be roughly 0.5% higher than it would beotherwise.

Some countries stand to gain a lot more than that average, and others, to lose out. The worldproduces just over 90mb/d of oil. At 115 abarrel, that is worth roughly 3.8 trillion a year; at 85,just 2.8 trillion. Any country or group that consumes more than it produces gains from the 1trillion transfer—importers, most of all.

China is the world's second-largest net importer of oil. Based on 2013 figures, every 1 drop inthe oil price saves it an annual 2.1 billion. The recent fall, if sustained, lowers its import bill by60 billion, or 3%. Most of its exports are manufactured goods whose prices have not fallen.Unless weak demand changes that, its foreign currency will go further, and living standardsshould rise.

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