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EMF OP 70: Crude Oil Trade and Current Account Deficits

This paper provides an empirical exploration into the relationship between crude oil trade and a nation’s current account for 91 countries over the 1984-2009 period. Reduced oil import dependence may initially reduce a country’s general trade deficit under certain conditions. The analysis probes the nature of this relationship and whether it holds equally to oil-importing and oil-exporting countries, after controlling for other exogenous drivers. We find that net oil exports are a significant factor in explaining current account surpluses but that net oil imports often do not influence current account deficits. Among all oil importers the one exception applies to relatively rich countries, where higher oil imports appear to contribute to greater current account deficits. One explanation for these trends is that oil exporters and wealthier oil importers may view oil income gains and losses as temporary income sources that influence their savings patterns.