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Pain at pump — boon to Gulf

Countries in Gulf region benefiting from high oil prices

SHARE Pain at pump — boon to Gulf

WASHINGTON — Motorists angry about high gasoline prices are quick to point their fingers at oil companies reporting record profits, but oil-producing nations such as Saudi Arabia are also benefiting just as handsomely.

High oil prices are expected to bring export earnings in excess of $500 billion to the six member nations of the Gulf Cooperation Council, or GCC, according to a report Tuesday from the Institute of International Finance. The GCC countries are Saudi Arabia, Kuwait, United Arab Emirates, Oman, Bahrain and Qatar. Collectively they account for 40 percent of world oil exports.

How much is $500 billion? Consider that the damage to Lebanon's infrastructure and economy in general after a monthlong conflict with Israel is broadly estimated at about $10 billion. That's about 2 percent of the GCC nations' projected oil earnings for this year. Their oil earnings are greater than the combined export earnings of the developing economies of India, Brazil, Poland and Turkey.

Howard Handy, director of the IIF's Middle East department, called the earnings "really unparalleled." Their earnings, he said, are flowing back into the global economy, which makes them effectively exporters of capital as well as oil.

The IIF, a trade association for international commercial and investment banks, believes that the GCC nations, led by Saudi Arabia and Kuwait, will buy more than $450 billion in foreign assets in 2006 and 2007. That's on top of the $167 billion in foreign assets accumulated in 2005.

In the 1970s, oil profits were often squandered on conspicuous luxury goods, but a lot of today's petrodollars flow back into the U.S. stock and commodity exchanges, treasury bonds and mortgage-backed securities.

The U.S. Treasury Department reported Tuesday that foreign purchases of U.S. stocks, bonds and treasuries exceeded $84.7 billion in June, the latest reporting period. A substantial portion of that, albeit hard to quantify, is believed to be petrodollar investments.

"They've become much more sophisticated than they were in the previous run-up of the price of oil," said Michael Economides, an expert on global oil at the University of Houston. "Then, there was a decade of a huge influx of dollars, petrodollars . . . they were like little children in a toy store — they actually went out and spent the money."

Unlike the 1970s, the U.S. market is no longer the only game in town for petrodollars. Today, Gulf oil profits are as likely to go to Europe, Asia or the Middle East as to the United States.

"They have other options now, and they're not going to put all their eggs in one basket," said Rachel Bronson, who studied U.S.-Saudi relations in the recent book "Thicker Than Oil: America's Uneasy Partnership with Saudi Arabia."

"Some of that money will certainly leak through to bad actors," said Bronson, who nevertheless noted that Saudi Arabia and the United Arab Emirates work closely with U.S. authorities to avoid financial leaks to terrorists.

High gasoline prices have U.S. motorists looking for someone to blame. But the Gulf nations are merely benefiting from surging global demand for oil. Demand in the United States, which burns a quarter of all global oil consumption, continues to grow despite high prices, as it does in the second-largest market, China.

Gulf nations are reluctant to invest heavily in new production because most oil forecasts warn that overproduction and falling prices may loom within a decade.