NEW YORK, Jan 24 (Reuters) – 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.
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 U.S. Treasuries or equities or, in some cases, buying real estate or investing in private equity funds.
For global markets, the main focus will be on those petrodollars earmarked for investment abroad. Assuming $70 oil and a 6.1 percent 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, during which banks have absorbed large losses on mortgage-backed securities and access to capital has dried up.
The Abu Dhabi Investment Authority, a sovereign wealth fund thought to have up to $875 billion in assets, and the Kuwait Investment Authority have put money into Citigroup at a time when the bank was reeling from mortgage-related losses.
But such funds, while flush with cash, also tend to be secretive, leaving global investors to guess about their asset allocation and long-term goals.
With roughly 40 percent of their population under 15, the report estimates the six countries will also invest some $3 trillion into their own economies, with the aim of creating more than 4 million new jobs over the next decade.
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