Petrodollars are giving oil producers the chance to buy whatever they wish, and at bargain prices in the United States thanks to a sagging dollar. Money is no object, billions of dollars are available to pay any price and if you have enough money, and they do, almost everything is for sale. Oil-producing countries have embarked on a global shopping spree.
Abu Dhabi Investment Authority is about to become one of the largest shareholders in Citigroup by paying $7.5 billion. Citibank had already seen the petrodollar's power this month when another major shareholder, Prince Walid bin Talal of Saudi Arabia, managed to oust its chief executive, Charles O. Prince III.
The Dubai stock exchange is negotiating for 20 percent of a newly merged company that includes the Nasdaq and the operator of stock markets in Northern Europe. Dubai doesn't have much oil but is doing the best job of investing for a future without oil. They also just bought part of Och-Ziff Capital Management, a hedge fund in New York.
Abu Dhabi this month invested in Advanced Micro Devices, the chip maker, and in September bought into the Carlyle Group, a huge private equity company.
Experts estimate that oil-rich nations have a $4 trillion of petrodollar investments around the world. And with oil prices likely to remain very high, that number could increase rapidly. In 2000, the 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, and that did not include the last two months of price spikes.
"If you look at gulf countries, they have a total common economy that is about the size of the Netherlands," said Edward L. Morse, chief energy economist of Lehman Brothers. "These are tiny countries, but they have to place collectively over $5 billion a week from their oil revenues. It's not an easy thing to do." (Don't you feel sorry for them?)
"The oil-producing countries simply cannot absorb the amount of wealth they are generating," said J. Robinson West, chairman of PFC Energy. "We are seeing a transfer of wealth of historic dimensions. It is not just Qatar and Abu Dhabi. Investment funds are being set up in places like Kazakhstan and Equatorial Guinea."
Many petrodollar investments are made through government-owned corporations, but individuals like Prince Walid are not doing so badly either; Walid recently bought stakes not only in Citigroup but also News Corporation, Procter & Gamble, Hewlett-Packard, PepsiCo, Time Warner and Walt Disney.
Analysts say the oil-rich nations are also investing more in real estate, private equity funds and hedge funds, and increasingly they are investing the money on their own, bypassing the major financial institutions of the United States and Europe.
However there is a problem with petrodollar investments because Arab investors don't show any transparency in their business dealings. The lack of transparency is a particular problem to leaders of Western industrial economies. In October, Henry M. Paulson Jr., Treasury secretary of the United States, and the finance ministers of other major industrial democracies, called for an international code of "best practices" by cross-border investors requiring greater disclosure of assets and actions. While western investors must meet governmental requirements of public disclosure, Muslim investors are not obligated to be open about what they do. Lack of transparancy also serves to possibly enable money to go to terrorists for conduct of Jihad against the very customers these investors seek to serve.
Some economists think petrodollar investments have benefited the world economy by increasing liquidity at a time when foreign currency reserves of export countries in Asia are also growing enormously. Recently Ben S. Bernanke, chairman of the Federal Reserve, said that the "global savings glut" has lowered interest rates worldwide and Ms. Farrell, of the McKinsey Institute, estimates that petrodollars may have kept American interest rates three-quarters of a percentage point lower than they would be otherwise, which is a direct benefit to American consumers.