Recycling the Petrodollar Tsunami

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Recycling the Petrodollar Tsunami

While the spike in oil prices during recent years has hurt many Americans financially, it has had the opposite effect in the oil-producing nations.

As Steven Weisman writes in The New York Times,1 experts peg petrodollar investments around the world at an eye-popping $4 trillion. What’s more, as oil prices continue to remain high, these totals will continue to skyrocket. Lehman Brothers’ chief economist says Gulf countries now have a combined economy roughly equivalent to that of Scandinavia. But unlike Norway and Sweden, these countries don’t have established industries other than petroleum. So they have to find productive new ways to invest $5 billion a week from their oil revenues, and that’s not an easy task.

For oil-consuming nations, the long-term challenge is to reduce the transfer of wealth to the petroleum producers. In the short run, the key is to focus on how oil-rich countries are using the vast riches they’re accumulating.

Dubai is investing its newfound wealth to transform itself into a commercial and financial hub, with impressive skyscrapers rising from the desert floor. Russia is investing in upgrading its technology. Other countries swimming in petrodollars are buying minority interests in major Western corporations.

When nations are buying or investing heavily, they’re looking for other countries and companies that are selling. That’s where you, your industry, and your country come into the picture.

As recently as 2000, OPEC countries’ earnings from oil exports totaled a mere $243 billion. But the recent boom, resulting in oil prices near $100 a barrel, has changed everything. As profits have gushed like oil from a new well, producers have aggressively increased their investments — mainly in the West, but also in their own economies and in some emerging nations. By 2007, the conservative estimate was that OPEC profits had increased to at least $688 billion.

All that money has to be invested somewhere, and the oil producers have been on a spending spree. Consider the recent actions of the Abu Dhabi Investment Authority. Last November, it committed over $7.5 billion to make it one of Citigroup’s largest shareholders.

Even before the Abu Dhabi investment, Citigroup had already experienced the impact of petrodollar investors. Earlier in the year, Saudi Arabia’s Prince Walid bin Talal helped show the door to Citibank CEO Charles Prince, III. Prince Walid may be unfamiliar to most Americans, but he’s the 800-pound gorilla of Middle East investors...

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