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.
"If the wealth funds of Norway and the Gulf countries begin to slowly pull out, it will have an impact on financial markets," Maduell said by e-mail.
Looking ahead, TheCityUK, a lobby group for the financial services industry in London, expects sovereign-fund assets will increase by just 4 percent in 2015 to $7.4 trillion, well below the 12 percent average annual growth seen over the previous five years.
Quantatative Easing
The amount of petrodollar investments in the five years through 2014 was on a similar scale to the Federal Reserve’s bond-buying program, known as quantitative easing, according to analysts at Barclays. As the flows have reversed, the world has lost about $400 billion in annual demand for financial assets, they said.
Nowhere is the decline more evident than in Saudi Arabia. The kingdom’s foreign holdings fell for the seventh month in a row in August to $654.5 billion, the lowest since February 2013, according to data from the Saudi Arabian Monetary Agency. The oil slump has spurred the biggest Arab economy to search for savings, contemplate project delays and sell bonds for the first time since 2007.