Wednesday, November 28, 2007

Petrodollars '00 Style

. Wednesday, November 28, 2007


Petrodollars played a key role in the genesis of the Latin American debt crisis during the 1970s. Today's NYT examines how oil exporters are using their windfall from the current oil price rise. How big a windfall, you ask? "In 2000, OPEC countries earned $243 billion from oil exports, according to Cambridge Energy Research Associates. For all of 2007 the estimate was more than $688 billion, but that did not include the last two months of price spikes." On average, oil exporters are earning $1.8 billion per day.

Seems that oil exporters are pursing a more diversified investment strategy today than they did during the 1970s; rather than deposit the funds in Citibank, they are now buying big shares of Citigroup (Abu Dhabi is now the single largest share holder). More broadly, "the oil-rich nations are...investing more in real estate, private equity funds and hedge funds, analysts say, and increasingly they are investing the money on their own, bypassing the major financial institutions of the United States and Europe."

Interestingly, oil exporters, like China, are a bit uncertain about what to do in response to a weakening dollar. Some advocate shifting out of dollar-denominated assets in response to the falling dollar; others fear that shifting into euro-denominated assets will cause the dollar to weaken further, thereby reducing the value of the dollar-denominated assets they have accumulated.

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Petrodollars '00 Style
 
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