America's Need for Saudi Oil and Gulf Money
Michel Morkos Al-Hayat - 09/06/08//
The US can no longer stick to its hard-line economic stances. Less than a year ago, its political institutions were blocking the inflow of investment capitals, especially from sovereign funds, for fear they might jeopardize national security. A month ago, the Congress called for suing OPEC, that cartel it blamed for the rise in crude oil prices. In both cases, Congress enacted laws; some allowing intervention to study the intentions of foreign investments and their threat to US sovereignty, others allowing the prosecution of OPEC. Even before these voices describing OPEC as a cartel were silenced, the US Treasury Secretary, Henry Paulson, was following the results of President George Bush's trip to the Gulf, particularly the KSA, hoping to see an increase in oil production. The Kingdom responded, pumping more quantities than the set OPEC quota.
In the Gulf, however, the US Secretary put forth propositions that diverge from the previous directions of his administration. He called upon the oil sector, especially in the Gulf, to open the doors of investment to US companies, while offering the companies currently operating in the oil sector new opportunities to entrench their presence in the region, market their equipment and technology, and share with local companies stakes in downstream and upstream activities, this in addition to the benefits they gain from their current presence. With this call, the US Secretary is said to promote such companies so embraced by Bush, to the extent they were referred to as the basic motive behind the war on Iraq.
In addition to promoting the US oil investment, Paulson acquitted sovereign funds, no longer described as a threat to the US national security. He urged these funds to invest in his country. These funds, as Paulson said in his statement to the CNN, were very welcomed in the US. He also explained that his recent tour to the Middle East aimed at confirming this point, especially in light of the doubts looming in the region and around the world.
The call is pressing and justified, given the US terrible need for these funds. The economy is slowing down, enterprises are laying off workers, and unemployment is on the rise; it has reached its highest level since 4 years. As for major financial institutions, they are in need of financial floating that can only be found in the funds of emerging or oil countries, especially Gulf countries. Thus, the most powerful economy in the world is now asking for help, stripping investments of the hostility attribute previously attached to them, investments that were seeking to fructify their profits, similarly to the US capitals in their ongoing search for suitable investment opportunities that might not be available at home.
What changed the strategy of the great economy doomed to slow down?
Households and enterprises save money and invest all over the world. When savings outstrip investments, the country exports its savings surplus to the rest of the world. As the economic logic goes, savings must be channeled either to countries with investment needs (countries of the South or emerging countries), to economic sectors of high importance (innovative sectors -new technology), or to any sector in the world that protects foreign investment and increases its returns.
Remarkably, the US takes up half of the globally available savings to compensate for the shortage in domestic savings. The shortage was due to the over-consumption of US households and real estate speculations. This shortage is further intensified by the deficit in the State balance which reduced the most important taxes to levels lower than in advanced countries. George Bush has initiated this trend to the benefit of the richest and most solvable individuals and institutions.
In order to support the economic activity in the midst of the financial crisis, in order to continue operating a complex economy and provide states with a minimal financing, the US has tried to maintain a high level of household spending, attracting two thirds of global savings. That was prior to the subprime mortgage crisis, the real estate crash and the economic slowdown, hence the shrinking need for external funding. Nevertheless, the US remains the first beneficiary of global managements.
On the other hand, developing countries combined achieve a savings surplus and are now financing the world, thus defying the logic of the economy. While they are supposed to be importers of net capitals, they form the largest cash supply ($4.5 trillion by the end of 2007) that can be invested in rich (advanced) countries. On top of that, investment funds are now varied, from sovereign to state and others. They are now pumping the money in assets of major enterprises in advanced countries. This pushes the countries of the North to downplay the advantages of monetary liberalization.
The share distribution (percent) of capital-exporting countries is as follows: China (21.4), Japan (12.6), Germany (11), KSA (6), Russia (4.5), Switzerland (4.2), and Norway (3.6). On the other hand, the shares of the receiving countries are: USA (49.4), Spain (9.3), UK (9.1), Italy (3.2), Australia (3.1), Greece (2.9), and Turkey (2.5).
The net flow of investment from emerging to advanced countries is estimated at $1 trillion, with the US currently receiving about half of this amount, after it lost around $200 billion because of the mortgage crisis and the ensuing crises in financial and stock markets. Therefore, its economic discourse has become flexible to open the door to Gulf investments and promote its oil companies, in an attempt to compensate for what it lost in direct or indirect investments, away from threats with prohibiting or punitive laws!
|
