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Report: Oil profits return to U.S.
Investments in Western assets by top exporters help keep interest rates in check, newspaper says.
October 4, 2005: 7:21 AM EDT

NEW YORK (CNN/Money) - Some of the billions in windfall profits going to overseas oil producers are coming back to the United States in the form of foreign investment, according to a published report.

The Wall Street Journal reported Tuesday that oil exporters like Saudi Arabia are saving and investing far more and spending far less than they did in earlier oil booms. And the newspaper says that the oil money being invested in U.S. assets are helping to keep long-term interest rates in check here, despite the steady pace of rate hikes by the Federal Reserve.

"The impact is presumably larger than the Asians' on global interest rates," David Robinson, deputy head of research at the International Monetary Fund, told the newspaper.

In the Middle East and Central Asia, governments are spending an average of about 36 percent of their additional oil revenue -- compared with nearly 90 percent in the 1970's and more than 60 percent in the 1980's, according to the newspaper.

"It's a real turnaround from the 1970's," Mohsin Kahn, head of the IMF's Middle East and Central Asia Department, told the newspaper. He said the IMF had previously warned oil producers about spending too much, often on what the Journal reported were lavish luxuries and costly projects of dubious economic value, some of which were never finished.

The newspaper reports that the overseas oil exporters have huge windfall profits that they can invest. In 2005, according to IMF data, oil-exporting nations are expected to earn $383 billion from overseas sales of oil and gas, which the newspaper reports is nearly twice the inflation-adjusted value of the previous peak, $197 billion in 1980.

Saudi Arabia's central bank's foreign assets nearly doubled to $109.5 billion in May from the end of 2003, when they totaled $59.5 billion, according to the newspaper. Saudi holdings of foreign securities jumped to $63.5 billion from $25.9 billion over the same period.


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