The current issue of Business Week (03/13/06) features a story on The New Middle East Oil Bonanza by Stanley Reed. It puts the Dubai port deal in the larger context of the current boom in call "petrodollars". Only these days a lot of them are "petro-yen" or "petro-yuan".
I was really struck by the following, which is relevant to the Dubai deal and other dealings with Arab oil states. It's a standard feature of American business writing to assume that everyone in the world wants to be like us. Business stories routinely predict that Europe will soon be forced to adopt an American-style social system and health-care financing system. Funny thing, though, there just doesn't seem to be that much demand for such a change in most European countries.
Ah, but the Arab countries want to be like us, too, it seems:
Yet in contrast to the helter-skelter development of the 1970s, a new and better-planned Middle East economy is rising, shaped by a well-educated business class and powered by a youthful population seeking prosperity. "Look at the demographics of these nations," says Alabbar, 46, who graduated from Seattle University. "They all see what the outside world is all about, and they dream to live like that." Some 65% of Saudis, for example, are 24 years old or younger.
Yeah, 9/11 changed everything. But not that particular piece of pristine faith. Oh, pay no attention to those Salafi fanatics lurking in the shadows. None of those petrodollars are making their way to them, no way. I mean, some guy named Alabbar told Business Week that all those people want to be just what a well-educated English-speaking Saudi or Kuwaiti would know that American business reporters want to hear. Just like us, that is.
And, you know, all that worrying about jihadist terrorism is, like, so 2002! Reed tells us:
All this is happening when the other Mideast - of Iraq, radical Islam, and Palestinian-Israeli relations - is wracked by violence and strife. That turmoil could certainly threaten the Gulf's prosperity. Just look at what happened in late February when al Qaeda fighters unsuccessfully attacked a key oil facility in Saudi Arabia. But for now the authoritarian regimes running the Gulf are seizing the opportunity to build new economies and satisfy their restive populations with a new level of affluence.
Yeah, heck, there are still those annoying Iraqi insurgents and those Palestinians that just won't quit griping. But the real action is with guys like Alabbar who want to be like us Americans. No, they won't be giving any money to bad people. Sure, the cash is a little hard to follow, which is a bit of an annoyance for stock analysts and business reporters:
The official figures, though, probably underestimate the clout of Arab money in world capital markets. According to PFC Energy, an energy consultant in Washington, the Mideast oil states hold a cumulative $1 trillion in foreign assets - stocks, bonds, government debt, real estate, and other investments. In fact, the money isn't easy to trace because unlike the oil boom of the 1970s, today's petrodollars aren't being parked in a few big American and European banks. Instead they are sprinkled around the world through an intricate network of private banks, funds, and offshore financial centers. "There's a distinct lack of hard information on where this money's going," says Mohsin S. Khan, director of the International Monetary Fund's Middle East and Central Asian department. (my emphasis)
No, none of that money is finding its way to jihadist and fundamentalist groups. Shoot, everyone in the Middle East wants to be like Americans now. Some guy named Alabbar says so, doesn't he?
But aside from the conventional delusions, Reed's article does have some useful information. For instance, that not-totally-transparent flow of money is also helping Japan and China to finance American debt:
What's more, the Arab states are now major buyers of goods from Japan, China, and the rest of Asia, where they sell the bulk of their oil. So these petrodollars get recycled as Japanese yen or Chinese yuan - which the Japanese and Chinese governments convert into U.S. Treasuries. Indirectly, then, oil money is bankrolling U.S. deficit spending. Paul Donovan, a global economist for UBS Investment Bank (UBS ) in London, estimates that petrodollars, mostly channeled through Asia and Europe, are funding up to 45% of the U.S. current account deficit. ...
The indirect but powerful role these oil states play in financing the U.S. deficit further enmeshes Washington's interests with the region's, no matter how contentious relations may get over America's foreign policy.
But there are less macro-economic reasons that a crony-capitalist government in Washington might be interested in some mutual financial back-scratching with a big-spending oil regime like the one in Dubai:
The numbers involved in these deals are still small compared with the billions being spent in the region. Bankers in the Mideast, however, say both governments and family companies controlled by Gulf billionaires are becoming more adventurous. Beat Naegeli, the Dubai-based head of Credit Suisse Dubai (CSR) private banking in the region, says big Arab investors, while still predominantly invested locally, are increasingly on the hunt for equity stakes in overseas companies and real estate deals in New York, London, and Paris. Many of these investors, he says, are currently expanding their private-equity positions rather than putting money into hedge funds - a good way to diversify. Abu Dhabi and Dubai have multibillion-dollar funds that are scouting for equity investments abroad. "We will see more of that," says Brad D. Bourland, chief economist at Riyadh-based Samba Financial Group, a leading Saudi bank. "This is the tip of the iceberg."
I wonder if the famous Carlyle Group, which is one of the Bush's dynasties main source of money and clout, is getting in on any of that action?
Other international companies such as Fluor Corp. (FLR) and Bechtel Group Inc. are likely to benefit from the frantic pace of construction, especially in the oil fields. Aircraft makers Boeing Co. (BA) and Airbus are selling squadrons of planes in the region, which is seeing the rise of fast-growing carriers like Dubai's Emirates. That airline has an astonishing $37 billion worth of planes on order, including 45 of Airbus' new A380 -- the biggest order placed by any airline for the double-decker megaplane. And between them, Emirates and Qatar Airways have ordered 49 Boeing 777 jetliners. "The Middle East has become one of the three big reservoirs of aircraft sales in the world," along with China and India, says Habib Fekih, president of Airbus Middle East.
Meanwhile, Nabil A. Habayeb, Dubai-based President and CEO for the Middle East and Africa for General Electric Co. (GE), says the company's orders for the region leaped by close to 80%, to $8 billion, from 2004 to 2005. Much of that is in big-ticket items like power-generation equipment and aircraft engines, as well as oil-, gas-, and water-treatment facilities. But state-of-the-art health-care equipment and even theme parks are in demand, too, says Habayeb: "The priorities are health care, education, and diversification away from an oil- and gas-based economy."
It's not just the big U.S. manufacturers that are benefiting. International investment bankers are being called in to raise capital for regional corporations interested in taking advantage of the red-hot markets.
So, with cash like that flowing around, who cares if there's a little sloppiness about that port security stuff. So a few terrorists sneak in, or some heavy-duty weapons, and maybe a little damage gets done. Think of it as one the things economists call "externalities". So a little damage gets done here and there. Stuff happens. Free enterprise isn't free, you know.
Unfortunately, from what we've seen of the Bush-Cheney administration, I wouldn't be surprised if the decision-making on the port deal was really on about that level.
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