From Oslo to Doha, Riyadh to Moscow, governments that rode crude’s historic rise to unprecedented wealth are now being forced to start repatriating their rainy-day funds just to make ends meet.
The halving of oil to less than $50 a barrel has the potential to alter one of the most powerful economic and political forces of the past half century: the rise of the petrostate. These countries led a surge in state investments in the U.S. and Europe that now totals about $7.3 trillion globally, according to the Sovereign Wealth Fund Institute.
During the last boom, the oil countries flaunted their wealth abroad by buying stakes in iconic companies such as Barclays Plc as well as trophy assets including Manhattan hotels, European soccer clubs and London luxury homes, often in the face of opposition from the local public.
Such swagger is fading.
The biggest fund, Norway’s, this week said it expects to tap its $820 billion stockpile for the first time next year to balance its budget, following similar moves across the Persian Gulf and in Russia. If sustained, the withdrawals may be felt by investors the world over, according to Michael Maduell, president of the Las Vegas-based Sovereign Wealth Fund Institute.
This may cause some minor turbulence in developed country bond, property and stock markets but the long-term net result is positive for countries which will benefit especially from lower energy prices.
However, the Middle East and not least Saudi Arabia has long had a large undereducated (except for religious studies) and untrained population, which has previously had little cause or encouragement to develop work ethics. This is a recipe for unrest as the free benefits are reduced.Back to top