The Dislodging of Another Leg From Western Primacy
The news isn't grand for those accustomed to calling the shots for the last century and more. And it all gets back to oil.As has been discussed on this blog and elsewhere, Big Oil is being eclipsed by national oil companies. Exxon, Chevron, BP, Shell -- the western companies that have swaggered their way through the halls of power since the beginning of the last century -- are losing out to Aramco, Gazprom, PetroChina, and so on.
Now another underpinning of Western primacy in the world -- global finance -- is going the same way. Take a look at this piece in the latest Business Week by Emily Thornton and Stanley Reed. It's on the so-called sovereign wealth funds, the diversified investment vehicles for the oil profits siphoned away by the six most important Gulf states: Saudi Arabia, Kuwait, Qatar, Abu Dhabi, Dubai and Oman.
Takeaways from this article: These states have amassed a stunning $1.7 trillion in their sovereign wealth funds, as much as all the hedge funds in the world combined. And their $180 billion in 2007 profit on these investments amounted to more than half their total $315 billion in profit from oil and gas. The money quote from Gregory A. White, managing director at Thomas H. Lee Partners: Soon "they will be the industry. We will be working for them."
When you add on the $156 billion held in Russia's Stabilization Fund and the $20 billion in Kazakhstan's National Oil Fund, these investment vehicles are buying up pieces of Western companies from Texas to Hong Kong and changing the finance world.
Merrill Lynch needs a $4 billion infusion to shore itself up after an expected $15 billion in mortgage writedowns, as The Wall Street Journal and The New York Times reported in the last couple of days? Don't be surprised if it's one of these funds coming to the rescue. Both Merrill and Citigroup have already received a combined total of some $13 billion in cash through stock sales to Abu Dhabi's sovereign wealth fund. The Journal reported yesterday that both are back in the Middle East to get more cash. Citigroup needs some $10 billion, according to the piece.These are not silent investors, as were the Middle Eastern petro-states in the 1970s and 1980s. I watch Russia most closely in this regard, and Moscow has discovered that, in the 21st century, it's easier to march across Europe doing business than with an Army.
It's another dimension in the shift of the center of gravity of global influence.
UPDATE: The Wall Street Journal is reporting that the Chinese Development Bank and Saudi billionaire Alwaleed in Talal are part of a group coming to the rescue of Citigroup. Alwaleed already is Citigroup's second-largest individual shareholder.
Photo: IJsendoorn
Rights: Creative Commons
Labels: big oil, gulf money, kuwait, oil book, oil money, qatar, Russia, russia book, saudi, sovereign wealth funds
6 Comments:
The British government recently sanctioned an approach to Gulf wealth funds in order to buy out Northern Rock, a UK mortgage lender which suffered due to the subprime crisis:
http://www.guardian.co.uk/business/2008/jan/10/northernrock.goldmansachs?gusrc=rss&feed=networkfront
Thanks Anonymous. I could not make that link work, but found thison the same topic. It could be that the Gulf funds are the only way to rescue Northern Rock. Best Steve
Thug States control the world's oil. It is ugly. There is plenty of oil, just in the wrong places.
But here's a riddle: Oil demand is falling, and what will that mean?
World oil consumption rose 3.1 percent in 2004, then 1.4 percent in 2005, then just 0.7 percent in 2006. My guess is that 2007 is flat. 2008? We go into reverse. (BP stats, by the way).
In the 1980s, falling oil demand led to price collapse. Also, oil consumption in 1990 was about the same as in 1980. Don't believe charts which project 2.2 pecent annual increases in demand. It ain't going to happen.
This time arund, thug states (by design and by sheer corruption, ala Mexico or Venezuela) probably will not "allow" prices to fall that much. New supply is not gushing onto the market.
Still, world oil production hit record high in Nov. 2007, and demand is falling. Add in biofuels and LNG and you are seeing supplies rise.
I suspect the $100 oil we saw (actualy, a single trade on the NYMEX, almost surely by a speculator) will be a record spike for the next 20 years. From here, we see a long, slow drfit down, although speculators could cause a collapse at some point.
There are interesting things going on all over he world. Thailand, for example, is projecting 4 percent economic growth,m and a 1 percent decline in fossil oil production in 2008.
All that being said, if the US wants to prosper, it would be well-advised to move forthrightly to energy independence, and start balancing federal and trade deficits.
We can have a more prosperous and cleaner world, but we will actually have to have policies to get us there.
Hi Steve
I had a long skype with Sean Roberts on this exact subject (not oil, but economic warfare) about six months ago. Your comment 'it's easier to march across Europe...' is right on the mark.
The only way that the US, Europe will be able to stay ahead is to continue being the 'idea factory' for the world, ie, Tom Friedman's argument. Because you correct point out that, financially, the center is moving East. You don't even need to mention Temasek or the Chinese funds to get the message...
Brian
After that BW article, who will the Kazakhs be buying into to develop the Almaty Financial Center...Dubai?
Well, Kazakhstan is in a banking crisis.
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