Trade deficit widens beyond expectations on oil imports
Posted January 13, 2012 at 1:38 pm 
Filed in: As our oil supply continues to be threatened over Iran’s war games in the Strait of Hormuz (read SAFE’s Intelligence Report here). This week, much of the news coverage has focused on European Union deliberations over sanctions, and implications for U.S. trading partners such as China, India, and Japan, which import Iranian oil. However, it’s also important to consider the implications for the national economic recovery. More instability means not only more price volatility, but generally higher prices overall, which not only crunches the wallets of consumers but contributes to the national trade deficit.
The U.S. Census Bureau released its numbers today, revealing a larger trade deficit than analysts expected, stemming mainly from growth in oil imports. Total import spending for 2011 is expected to rise to $325 billion for 2011, the highest it has reached since 2008. Oil’s contribution to the trade deficit rose to 58 percent on average for the year through November, the highest level on record.
The November increase was the first widening of the deficit in five months. BBC news reports that figures from the Commerce Department show that the overall deficit grew 10.4 percent to $47.8bn, while imports rose 1.3 percent to a record $225.6bn, boosted by demand for oil and foreign cars. Exports fell for the second month in a row, dropping 0.9 percent to $177.8bn, after lower sales of cars and capital goods such as aircraft and machinery. The average price of imported oil rose 3.7 percent from October to $102.50 a barrel.
One of the “upsides” of the financial crisis was decreased oil consumption, which led to a narrowed trade deficit in 2009 and 2010. Although the current deficit remains smaller than 2008 levels, with continued economic recovery greater petroleum imports will likely be needed. Considering the continued volatility in Iran and Nigeria, a severe or prolonged oil price spike could dramatically worsen the situation in 2012.
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