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New York: Six Middle East oil exporters stand to earn more than $6 trillion by 2022, and how they invest the funds could have financial and political repercussions that last decades, according to a report released on Thursday.
With oil at $70 a barrel, the six Gulf Cooperation Council countries would reap export revenues of $6.2 trillion over the next 14 years, triple the amount earned during the previous 14, the McKinsey Global Institute said.
At $100 a barrel, earnings would approach $9 trillion, while even a pullback in crude prices to $50 would bring in a cumulative $4.7 trillion, the report said.
Oil hit an all-time peak above $100 a barrel in early January before easing to about $88.
Rising demand in China and other developing economies, strong global growth, supply concerns and unease over Iran have boosted prices.
The investment choices of the six countries - Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain - "will affect interest rates, liquidity and financial markets around the world," the report said.
"The new fortune also comes with risks," it added. "A flood of liquidity into global markets could cause asset price bubbles, fuel profligate lending and result in a poor use of global capital."
To keep inflation down and boost profits on their earnings, the Gulf countries have to recycle their massive oil revenues into global capital markets. They do this by purchasing assets such as US Treasuries or equities or, in some cases, buying real estate or investing in private equity funds.
Petrodollars
For global markets, the main focus will be on those petrodollars earmarked for investment abroad. Assuming $70 oil and a 6.1 per cent annual increase in domestic investment - the average rate over the past 14 years - McKinsey estimates the six states will have $3.5 trillion to invest abroad between now and 2020, nearly twice their current foreign wealth.
McKinsey estimates the six GCC countries held foreign assets worth about $1.9 trillion at the end of 2006.
That was more than double the 2003 figure and nearly equal to the combined size of the Brazilian and Indian economies, or the market value of the top 10 Fortune 500 companies.
Future investment is likely to come from both the official sector, such as central banks, state-funded companies and sovereign wealth funds, as well as wealthy private individuals and private firms, the report said.
Some economists have looked at such well-heeled investors as a boon for markets, especially at times such as the current credit crisis.
Outlook: Record opec exports
Thanks to higher oil prices, Opec member nations are expected to earn a record $850 billion this year from their crude exports, about $175 billion more than in 2007, the US government's top energy forecasting agency said on Wednesday.
Net oil export earnings from the Organisation of the Petroleum Exporting Countries should jump 26 per cent from last year's record $675 billion and then fall to $783 billion in 2009 on lower oil prices, the US Energy Information Administration said.
On a per-capita basis, Opec's oil export revenue reached $1,147 last year and is forecast to increase 24 per cent in 2008 to $1,424, said the EIA, which is the US Energy Department's independent analytical arm.
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