US Oil Imports

The price of oil is at around $60 per barrel for the second day in a row today. Note that this is this highest price for crude oil in real terms since the end of 1982.

Naturally, this means that the value of US oil imports will continue to grow from their already high levels. As the chart below illustrates, the US now spends close to $20 bn per month on imported oil, roughly double the average of just two years ago.

But it is worth noting that US oil imports are growing not just relative to what they were a couple of years ago, but also relative to the US economy in general. The following chart shows the real price of oil, and US oil imports as a % of GDP, from 1978 up through the first quarter of 2005.

Unsurprisingly, the portion of US GDP devoted to buying imported oil closely tracks the price of oil. But the chart also shows that for a given price of oil, the US economy is more dependent on imported oil than at almost any time in history. In early 2005 a larger share of US income was spent on imported oil than at any time other than the brief period 1979-1982. And of course, since then, the price of oil has risen by several more dollars per barrel.

This has several implications. One is simply that the US economy is more susceptible to developments in foreign oil-producing countries than ever before. Another is that some economists (myself included) may need to recalibrate our mental maps of the world slightly; oil imports matter a LOT to the US economy today. This was not true during the 1990s, when energy imports were a relatively insignificant detail in the overall picture of the US economy. But today US oil imports make up a giant component of international trade and financial flows (a point Brad Setser has effectively made recently), and are crucial to understanding the US macroeconomy more generally.