$2 trillion flowing into petrostates
Cairo, September 6, 2012
Petrostates are attracting nearly $2 trillion a year, greater in real terms than they saw at the peak of the last oil boom, according to a Citi Research report.
The flow is expected to continue for the next two-three years, the report said.
The report identifies eight petrostate equity markets: Russia, Saudi Arabia, Norway, Kazakhstan, Qatar, Kuwait, UAE, and Nigeria as the key markets for investment. These markets have a capitalisation of nearly $2 trillion, and daily trading of over $6 billion.
The petrostates identified in the report enjoy an excellent macroeconomic position with which to confront global shocks. On average they run a fiscal surplus of 5 per cent of GDP and a current account surplus of 12 per cent of GDP.
The report said oil is a safer foundation than most as it is a late-cycle commodity with many demand drivers and a powerful producer cartel. 'We expect oil prices to fluctuate in a range from $90 to $130 over the next two to three years,' it said.
The downside of petrostates is that typically, they tend to authoritarianism, suffer from Dutch disease, and become ever more oil dependent; in many cases their elites indulge in rentier behaviour, the report said.
'If oil prices were to fall to low levels and stay there for an extended period, then GDP levels would fall significantly and many regimes would likely prove fragile,' the report said.
'There are indeed risks to oil prices, but we believe that they are less intense than many other risks in an uncertain world.
'The attractiveness of the petrostates has a time limit. By the end of the decade we expect oil prices to fall to a new trading range of $65-90 as a result of new sources of supply. Unless petrostates are able to curtail their spending habits by that stage they are likely to be highly vulnerable to this change.' - TradeArabia News Service
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