Bahrain Freedom Movement

07/07/2007

Where do the Gulf states invest their immense wealth? THERE is no crime involved, but the mystery of the petrodollar billions is worthy of Sir Arthur Conan Doyle. Thanks to high oil prices, the Gulf states’ coffers have been bulging. From 2002-06, the six countries of the Gulf Co-operation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) earned about $1.5 trillion from oil exports, twice as much as they made during the preceding five years. Around $1 trillion of that money was spent on imports. The rest—a cumulative current-account surplus of $542 billion—went abroad. But where? The answer is a matter of avid curiosity, particularly among hedge funds that take big bets on international asset prices. Along with China, the Gulf states are the thrifty counterparts to America’s gaping saving shortfall. A shift in their appetite for dollar assets could send the greenback tumbling and push up American interest rates. Hedge-fund managers try to track the flow of petrodollars believing that they are likely to be more volatile than other sources of global liquidity, such as Asian reserves, and are less likely to sit quietly in American Treasuries. They may also be super-charged with leverage through investments made in hedge funds and private-equity firms

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