Oil-Rich Nations Are Selling Off Their Petrodollar Assets at Record PaceIn the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club.
Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.
If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets. “This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas SA in London. Saudi Arabia, the world’s largest oil producer, is the prime example of the swiftness and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in February, the biggest monthly drop in at least 15 years, according to data from the Saudi Arabian Monetary Agency. That’s almost double the drop after the financial crisis in early 2009, when oil prices plunged and Riyadh consumed $11.6 billion of its reserves in a single month. The International Monetary Fund commodity index, a broad basket of natural resources from iron ore and oil to bananas and copper, fell in January to its lowest since mid-2009. Although the index has recovered a little since then, it still is down more than 40 percent from a record high set in early 2011. Oil futures in New York traded at $52.78 a barrel today, 49 percent lower than a year ago. MORE