DUBAI, March 17 /PRNewswire/ -- After the 2002 surge in oil prices, most oil-exporting countries started setting up dedicated investment funds exclusively for the oil surplus they had earned. They were further encouraged when in 2006, the price of oil increased from an average of $28 per barrel to $80 per barrel.
Consequently, the gross domestic product (GDP) of the petro-states increased manifold and created substantial liquidity and large-scale opportunities for overseas investments. In fact, the funds of the Gulf Cooperation Council (GCC) alone accounted for more than half the assets held by Sovereign Wealth Funds globally.
New analysis from Frost Sullivan ( http://www.financialservices.frost.com), Petrodollars - Transformation of Oil Wealth into Financial Wealth, reveals that petrodollars are one of the most powerful financial tools in the present day scenario. The funds of the GCC are expected to touch more than $1.500 trillion by 2010.
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In the beginning of 2000, the funds of GCC did not constitute more than $350.00 billion and investments were predominantly concentrated in the U.S. assets, says Frost Sullivan Research Associate Preetha S. However, by the end of 2006, their assets grew to over $1.000 trillion and the pattern of investments also changed from low-risk portfolios to high-risk ones such as equity and alternative investments.
Nevertheless, the global economic slowdown has had ramifications across industries and regions and the petro-states have not been spared either. They have experienced a significant drop in the prices of their major export constituent and thereby, their revenue growth rates. The prices of oil plummeted from a high of $147 per barrel in the beginning of 2008 to nearly $60 per barrel by the end of that year. Experts expect this trend to persist and prices to hover around the $40 per barrel mark.
However, unlike the other oil-importing nations of the west, the Middle East petro-states' loss has been minimal with regard to capital or source of revenues.
The mere slowdown in the pace at which the revenue gets accumulated clearly reveals that the petro-states are more insulated than any other economy, either developed or developing, notes Preetha. Owing to this, almost all the global leaders are considering petrodollars as the only option to gradually bail them out of the financial predicament.
The refuge offered by petrodollars notwithstanding, the falling oil prices may alter the investment strategies of the petro-states. The international financial meltdown and the discovery of alternate sources of energy could accelerate the quantum of petrodollar investments.
Domestic investments are likely to increase in order to lower the region's dependence on oil revenues. This will, in turn, accelerate the region's urban development, economic diversification and create more job opportunities.
Meanwhile, investments in the international banking and financial services sector are estimated to reduce to approximately 30.0 percent of the total investments made by the petro-states. Although this does not imply that the percentage of investments in the financial services sector will fall drastically, not many will consider investing in this sector until the market stabilizes, as it is directly related to the global financial environment.
Investors are likely to withdraw the invested capital from international banking and financial services sector and channel them into real estate, hospitality, and tourism sectors, observes Preetha. The petro-states consider the real estate sector a very attractive investment option, especially in the United States and other developed countries, since the prices of the property market have reached the lowest possible levels.
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Petrodollars - Transformation of Oil Wealth into Financial Wealth N50E Contact: Tanu Chopra Corporate Communications - Middle East P: +91-22-4001-3437 F: +91-22-2832-4713 E: email@example.com Caroline Lewis Corporate Communications- South Asia P: +91-22-4001-3438 F: +91-22-2832-4713 E: firstname.lastname@example.org Nimisha Iyer Corporate Communications - South Asia Middle East P: +91-22-4001-3404 F: +91-22-2832-4713 E: email@example.com http://www.frost.com
Contact: Tanu Chopra, Corporate Communications - Middle East, P: +91-22-4001-3437, F: +91-22-2832-4713, E: firstname.lastname@example.org; Caroline Lewis, Corporate Communications- South Asia, P: +91-22-4001-3438, F: +91-22-2832-4713, E: email@example.com; Nimisha Iyer, Corporate Communications - South Asia Middle East, P: +91-22-4001-3404, F: +91-22-2832-4713, E: firstname.lastname@example.org