Petrodollars Recycling

Background

During the two indicated periods, oil exporters gained a large amount of funds ^{[1] [2] [6]} . The term " petrodollars " arose in 1973. Authorship is attributed to two commentators at once: American economist of Egyptian origin Ibrahim Oveiss and former US Secretary of Commerce Peter J. Peterson ^{[7] [8] [9]} . Some exporters formed surpluses of petrodollars - the positive difference in US dollars between the profit from the sale of oil and the domestic demand for investment resources ^[10] . Investing excess funds in their own economy would be ineffective due to the small population or insufficient industrialization . On the other hand, excess revenues could be invested in the economies of other countries, or aimed at the purchase of consumer goods, building materials, and weapons. In addition, the removal of petrodollars from the global economy would slow down global economic growth, ultimately damaging exporters. Their own long-term growth depended in many respects on the opportunities to profitably invest profits from the sale of oil ^[11] .

The first influx (1974-1981)

Recycling petrodollars helped mitigate the short-term effects of the 1973 crisis , but oil importers suffered from high prices, accumulating long-term debt. According to the IMF , the external debt of 100 oil-importing developing countries grew by 150% in 1973-1977. The situation was exacerbated by the global transition to a floating exchange rate regime . In 1974, IMF managing director Johan Witteven said: “The world monetary system has entered a difficult period for itself since the 1930s” ^{[12] [13]} . The fund launched a new lending program (1974-1976) called the Oil Facility . As part of the program, oil-producing countries and some other lenders helped states whose trade balance was severely affected by rising prices. Among the recipients were dozens of developing and some developed countries, for example, Italy and the United Kingdom ^[14] .

From 1974 to 1981, the total current account surplus of OPEC countries reached $ 450 billion (excluding the decades of inflation that followed). 90% of the surplus was in the Gulf countries and Libya . The Iranian government was also content with an oil surplus, but the 1978 revolution , the war with Iraq, and international sanctions greatly weakened the Persian economy. ^[10]

Significant volumes of Arab petrodollars were invested in securities of the US Treasury and financial markets of other developed countries. Investment flows were controlled by government organizations, now called sovereign funds ^{[15] [16]} . Billions of dollars were invested in commercial banks in the United States and Europe. All this contributed to the growth of the Eurodollar market, freer from regulation than the American money markets. The recession in the global economy has made private equity investments less attractive, with banks and wealthy governments lending mostly to developing countries. Large flows of funds were directed to Latin America, including Brazil and Argentina ^[10] , and other large emerging economies, for example. in Turkish . The 1973 oil crisis created a serious dollar deficit in these countries, but they still needed money to import oil and engineering products. In early 1977, the cabinet of the Turkish Prime Minister ceased to be heated, and therefore the opposition leader Suleiman Demirel uttered the famous words “Turkey lacks 70 cents” ^{[17] [18]} . According to political journalist William Grader, bank loans formed from deposits of oil-producing states saved developing countries from bankruptcy ^[19] . In the following decades, many of the debtors realized the impossibility of repayment. Their governments declared the neocolonial nature of their obligations, seeing the only way out of debt relief ^[20] .

Second Influx (2005–2014)

Responding to the second influx of petrodollars, financial market participants relied on the experience of the first cycle. Developing countries avoided major imbalances, the world economy was not so much dependent on petroleum products. World inflation and interest rates were held back much more effectively. Oil exporters sought to invest in many markets, refusing to mediate international banks and the IMF ^{[22] [23] [24]} .

Due to the increase in prices in 2003-2008, the revenue of OPEC members reached a record $ 1 trillion per year (2008 and 2011-2014) ^[2] . A tangible surplus was received by Russia and Norway, which are not members of OPEC ^[6] . In 2014-2015, sovereign funds held a total of $ 7 trillion. ^[25] Iran, Iraq, Libya, Nigeria and Venezuela, which were in a state of political crisis, were unable to take advantage of the favorable circumstances of the market. Some economists attribute this state of affairs to the resource curse phenomenon ^{[26] [27]} . Most exporters were able to prepare for a price collapse caused by the overproduction of oil ^[28] .

Oil exporters send part of the proceeds to help partner countries. In journalism and even refereed publications ^{[29] [30]} , clichés of “ check diplomacy ” and “ oil Islam ” clung to such relations. The pioneer in this direction was the Kuwait Fund for Arab Economic Development (1961), since 1974 other Arab states began to provide international assistance. Partners were supported, inter alia, through the channels of the International Monetary Fund and the OPEC Fund for International Development ^{[10] [31] [32]} . There were indirect channels. Tens of millions of foreign workers who worked in the Middle East sent part of their earnings home to less prosperous countries ^[33] . At the same time, working conditions in the Gulf countries were very severe ^[34] . Some governments in oil-exporting countries provided financial support to armed groups operating in unfriendly states ^{[35] [36] [37] [38]} .

High oil prices in 1974-1981 allowed the Soviet government to support the crisis economies of the Eastern Bloc . It is believed that the overproduction of oil in the 1980s contributed to the collapse of the block in 1989 ^[39] . During the second influx of petrodollars, the OPEC member state of Venezuela sent money to the Cuban government and carried out preferential oil supplies under the Petrocaribe program ^[40] . The fall in oil prices in 2014-2017 provoked a crisis in Venezuela itself ^[41] .

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  US Treasury Securities . In 1960–2015, OPEC member governments concentrated about $ 300 billion in US Treasury bonds ^[42]

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  German automobile factory Daimler . The largest shareholder of the enterprise since 1974 is Kuwait ^{[43] [44]}

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  Itaipu Dam on the border of Brazil and Paraguay . Built in the 1970s on loans from banks whose depositors were oil exporters ^[45]

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  Faisal Mosque in Islamabad (1976-1986) donated to Pakistan by Saudi King Faisal ^[46]

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  In the context of food shortages (1970–80s), the Soviet Union imported western grain ^[47]

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  Since 1981, Saudi Arabia has purchased dozens of American F-15 fighter jets ^[48]

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  Harrods Department Store in London . Since 1985, owned by Arab owners ^{[49] [50]}

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  Chelsea Football Club since 2003 belongs to Roman Abramovich , owner of Sibneft ^{[51] [52] [53]}

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  A 2004 bilateral agreement between Venezuela and Cuba provides for the exchange of medical services for preferential oil supplies ^[54]

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  Since 2005, Dubai- based Emirates has acquired millions of liters of top-quality French wine ^[55]

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  The Turkish Telecommunications Corporation in 2005 came under the control of Saudi Oger . The IMF acted as broker ^[56]

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  In 2008, the Abu Dhabi Investment Council acquired 90% of the Chrysler Building in New York ^{[57] [58]}

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  Iran supplies arms to Lebanon and Syria , supporting Hezbollah’s organization. In 2009, the Israeli fleet intercepted 300 tons of weapons ^{[59] [60]}

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  “ Card Players ” Cezanne in 2011 became the property of the Qatari royal family. The record amount of the transaction exceeded $ 250 million. ^[61]

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  The construction boom of 2003-2014 in the UAE was provided mainly by foreign labor ^[34]

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  Toyota cars in Kuwait . Japanese manufacturer dominates the Kuwait market ^[62]

• Dutch disease

• Clark, William R. Petrodollar Warfare. - New Society Publishers, 2005. - ISBN 978-0-86571-514-1 .
• Smolyar, Leonid (2006). Petrodollars: Tracking the Flow and Investment of Oil Windfalls (PDF) (B.Sc. Honors thesis). New York University . Archived from the original (PDF) on April 25, 2012. Archived April 25, 2012 on Wayback Machine
• Staats, Elmer B. The US – Saudi Arabian Joint Commission on Economic Cooperation (Neopr.) . US Government Accountability Office (1979). Date of treatment January 31, 2016.