More Money Than Sense

September 13th, 2005 · No Comments

The Economist has an interesting article that sums up the current oil boom in the gulf:

WITH the price of oil rolling past $60 a barrel, where is the producers’ windfall falling? Some of it is going on useful things like roads and schools and paying off debts, some gets recycled, flowing back to energy-thirsty countries in the form of higher demand for their goods. Quite a lot of the cash, though, may be blowing bubbles in Arabia, as in giant stockmarket ones, or getting buried in the sand.

For Gulf oil producers, boom times are back, with a fury unseen since the oil-price shocks of the 1970s. In 2003, the six Arab monarchies that make up the Gulf Co-operation Council sold some $145 billion-worth of oil and gas. At current prices, that total looks set, this year, to double. The value of Saudi oil exports since 2002 has equalled oil revenue for the whole of the 1990s. The Saudi authorities say that investment in the first half of this year was 17 times last year’s first-half figure.

Small wonder that in April a public share offer by a start-up oil firm in mega-rich Abu Dhabi, one of the seven United Arab Emirates (UAE), ended up 800 times over-subscribed. The company, Aabar Petroleum Investments, had sought to raise a modest $135m in capital. In the event it won pledges worth over $100 billion, a sum that is a quarter bigger than the UAE’s entire GDP. Lucky banks that jumped to lend to some 87,000 punters in the emirates on the issue earned considerably more in fees and interest than did the issuing company. On an earlier IPO that was 458 times oversubscribed, banks are said to have pocketed $500m. Most UAE banks have still posted half-year profits this year bigger than for all of 2004.

This is some serious $$$ and growth. Let’s hope that someone in power has the forsight to see that the party won’t last and like any other bubble this one will burst too.