The world's attention is firmly turned toward Asia when it comes to widening imbalances in global trade and investment, soaring foreign-exchange reserves and the dollar's structural weakness.
That focus, though, may have swung too far east.
As oil prices have resumed their march to record highs above $75 a barrel, the current-account surpluses of oil-exporting countries -- particularly those in the Middle East -- have rocketed.
Surpluses of so-called petrodollars are being used in ways that are having one of two polar effects on global imbalances, and neither may be conducive to their smooth adjustment.
I maintain that petrodollars are the biggest risk to the dollar this year, said Michael Woolfolk, senior currency strategist at The Bank of New York.
On the one hand, these surpluses are exacerbating global imbalances because they are recycled more and more into dollar-denominated assets, helping to depress U.S. interest rates and sustain the free-spending habits of Americans.
On the other hand, oil-exporting countries may be moving greater chunks of these surpluses into non-dollar assets. This could threaten the greenback's status as the world's pre-eminent reserve currency, raising the risk of a sell-off.
Last month, Quatar's central bank said it had cut the proportion of dollars in its reserves and increased its share of euro holdings. And Russian Finance Minister Alexei Kudrin questioned the dollar's status as the world's absolute reserve currency.
Binky Chadha, head of global currency research at Deutsche Bank in New York, said the rapid growth in surplus petrodollars across the globe reflects a shift in the composition of the U.S. current account deficit.
I've been saying this since November, December last year, and I don't think the direction has changed, especially with oil above $70 a barrel, Chadha said.
IMF DATA REVEALING
Group of Seven finance chiefs meeting in Washington last month called for greater currency flexibility in emerging economies with large current account surpluses, and referred to China specifically.
But, as data from U.S. Treasury and multilateral bodies such as the International Monetary Fund and the Bank for International Settlements show, the weight of petrodollars in the global-imbalances equation is growing.
In its latest World Economic Outlook, published last month, the IMF predicted high oil prices will prolong current-account imbalances longer than was previously the case.
High oil prices are widening the already large global external imbalances ... (and) ... account directly for one-half (or about 1 percentage point of GDP) of the deterioration in the U.S. current account over the past two years, it said.
The IMF offered some startling figures.
The cumulative current-account surpluses of fuel exporters was $1.28 trillion last year, in 2005 dollars -- and the IMF expects that figure to grow by $460 billion this year. These countries' cumulative current account surplus was $848 billion in 2004, $612 billion in 2003 and just $49 billion in 1999.
Even as China's current-account surplus more than doubled last year to $161 billion, oil-exporting countries' surpluses were growing faster. Last year, they accounted for 0.99 percent of global gross domestic product -- almost three times as much as the 0.38 percent recorded in 2003, according to the IMF.
In contrast, China's current-account surplus last year was worth 0.26 percent of global GDP, compared with 0.13 percent in 2003, the IMF said.
A similar pattern is evident from the rapid growth in fuel exporters' foreign-exchange reserves. At the end of last year, they stood at $485 billion, up from $323 billion in 2004 and more than double the $197 billion at the end of 2003. In 1999, they were just $5 billion.
China's reserves now total $875 billion, around 21 percent of the world's reserve pool. But even that mammoth figure represents slower growth from $166 billion at the end of 2000.
TICS DATA MURKIER
Nouriel Roubini, a professor of economics at New York University, says half of the $805 billion U.S. current-account deficit last year was financed by foreign central banks, with those of oil-exporting nations playing a major role.
Members of the Organization of Petroleum Exporting Countries plus non-OPEC oil exporters deposited a combined $82 billion into Bank for International Settlements reporting banks in the third quarter of last year -- the largest-ever quarterly placement.
Data from U.S. Treasury International Capital (TIC) flows show that OPEC holdings of Treasury notes and bonds stood at $84.9 billion in February, up from $52.7 billion in July.
Yet, analysts say an even bigger chunk of petrodollars may be getting recycled through London, pointing out that many oil-exporting countries buy foreign securities via British banks.
The TIC data show that British holdings of U.S. Treasury notes and bonds have soared more than $100 billion since June 2005 to $251 billion.
There's a feeling that some of that is related to petrodollars, but you can't prove it, said Brian Garvey, senior currency strategist at State Street in Boston.