Oil-rich states attracting nearly $2 trillion a year: report

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An oil worker tending to a supply pipeline in Iraqi Kurdistan. Photo – AFP

A Citi Research report said on Thursday oil-rich states are attracting nearly $2 trillion a year, greater in real terms than they saw at the peak of the last oil boom. The flow is expected to continue for the next two-three years, the report added.

Identifying the eight oil-rich equity markets: Russia, Saudi Arabia, Norway, Kazakhstan, Qatar, Kuwait, UAE, and Nigeria as the key markets for investment, the report said these markets have a capitalisation of nearly $2 trillion, and daily trading of over $6 billion.

The oil-rich states identified in the report enjoy an excellent macroeconomic position with which to confront global shocks, the report explained while adding that on average they run a fiscal surplus of 5% of GDP and a current account surplus of 12% of GDP.

The report said oil is a safer foundation than most as it is a late-cycle commodity with many demand drivers and a powerful producer cartel. “We expect oil prices to fluctuate in a range from $90 to $130 over the next two to three years,” it said.

“If oil prices were to fall to low levels and stay there for an extended period, then GDP levels would fall significantly and many regimes would likely prove fragile,” the report said.

‘There are indeed risks to oil prices, but we believe that they are less intense than many other risks in an uncertain world.

The report also disclosed the downside of petrostates, stating they tend to authoritarianism, suffer from Dutch disease – relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector, and become ever more oil dependent. The findings added that in many cases their elites indulge in rentier behaviour.

‘The attractiveness of the petrostates has a time limit. By the end of the decade we expect oil prices to fall to a new trading range of $65-90 as a result of new sources of supply. Unless petrostates are able to curtail their spending habits by that stage they are likely to be highly vulnerable to this change,” it concluded.

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