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Trillions coming in petrodollar ‘tsunami’
21-05-2008
Jen estimates that the stock of the world's proven oil reserves is worth some US$121 trillion – based on a price of US$100 per barrel. This figure dwarfs the combined market capitalisation of global equities and bonds.
The Gulf Co-operation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) own stock worth US$48 trillion. Other OPEC countries own another US$44 trillion, and the non-OPEC countries (Canada, Norway, Mexico and Russia), US$12 trillion.
Up to 10 per cent of the receipts may be spent on infrastructure and other investments, the rest will be invested in global financial markets – through sovereign wealth funds (SWFs), Jen says. SWFs have started their hunt for strategic assets in foreign sovereign entities, already rankling political sensitivities in host countries.
Jen estimates that the annual flow of oil receipts will be US$2 trillion. In his estimates, oil-providing countries will spend just US$75 billion of their annual oil export receipts on infrastructure development.
Jen writes that Russia and Saudi Arabia have clear needs for spending more on infrastructure, while the likes of the UAE, Qatar, Oman and Bahrain need to transform themselves into more diversified economies.
Many of these countries, led by the UAE, are spending huge amounts of money on large projects. Much of the development in the UAE is aimed at establishing a tourism industry.
Starting from 2007, cumulative petrodollar receipts could be US$15 trillion by 2013 – and double that amount by 2020. Jen predicts that the tsunami of petrodollars will help push down global long-term interest rates, and will act as a favourable tailwind for risky assets.
To get it in the right perspective, Jen say people should get used to the meaning of one trillion dollars. This means the total size of the Korean and Russian economies – which are about US$1 trillion and US$1.2 trillion respectively. The United Kingdom’s economy is worth US$2.7 trillion, and the United States US$14 trillion.
Combined total market capitalisation of publicly-traded equities and the bonds market is about US$100 trillion, and the total world's official foreign reserves around $6.4 trillion. This certainly means a shift of financial influence and power to the petrodollar holders, he says. |
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