A significant part of the petrodollar windfall (1,000 billion? 2,000 billion? Uncountable gazillions?) has been recycled through Middle Eastern stock markets. Public-sector companies have been listed on the stock market in offerings restricted to nationals at "under-valued" prices. In the Gulf countries, the recycling of petrodollars has sustained a kind of exuberance on local financial markets (with average annual gains of up to 100% before the bubble burst in 2006).
Infrastructure projects to meet the needs of growing populations constitutes a second way of getting rid of the inflow of petrodollars. Gulf countries have plans to spend USD 1,500 billion on infrastructure over the next five years. Most of the money will be misspent. For example, the six Gulf countries have all decided to invest in the development of financial districts.
Petrodollars allow rulers to avoid reforms and buy social peace. This spending leads to revolution.
Inflation is the final challenge. Petrodollars cause liquidity that feeds inflation. In Iran, inflation is running at between 15% and 20% a year.
Now, if I were a mosquito, how could I suck up a drop from this mighty flow of petrodollars?
Infrastructure projects to meet the needs of growing populations constitutes a second way of getting rid of the inflow of petrodollars. Gulf countries have plans to spend USD 1,500 billion on infrastructure over the next five years. Most of the money will be misspent. For example, the six Gulf countries have all decided to invest in the development of financial districts.
Petrodollars allow rulers to avoid reforms and buy social peace. This spending leads to revolution.
Inflation is the final challenge. Petrodollars cause liquidity that feeds inflation. In Iran, inflation is running at between 15% and 20% a year.
Now, if I were a mosquito, how could I suck up a drop from this mighty flow of petrodollars?
Speculating on futures contracts. I am trying it. A month ago I bought 1000 options and it is 30% down. I dont like it, but it made me learn what oil was about. I still dont understand it. US crude reservoirs are full, supply is satisfying demand. Yet prices are historically high. The European Union asked OPEC to supply more crude to reduce prices, and they refused, since there is no scarcity and it would have made prices fall. Prices are high because OPEC has no spare supply capacity to regulate the market, so any trouble - turmoil in Nigeria, war in Iran, terrorism, etc. - will cause price go up very steeply. Demand is unflexible, people will not reduce consumption if price goes up or doubles. OPEC needs spare capacity and they are drilling but it takes time and many of the old fields are declining. If in its October meeting OPEC does not increase supply, its unability to do so may have been proved and the market will rise wildly. I shall lose all my investment. If it announces that will supply more, solving the mystery of its real production capacity, price will collapse and I will profit.
Infrastructures projects. In Israel and me have exactly the experience and the capability the Arabs need - in water supply, in maintainance and operation, in water recycling, in irrigation with wastewater. The market is open in Dubai and the UAE, but it is done very low key. The Saudis are not enforcing the boycott against Israelis, but I have heard little actual work there. And the market is fully dominated by the British and Americans. And now the British are boycotting Israel. I will study more this market.
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