$1tn Opec oil revenues to be highest in history this year

Organization of Petroleum Exporting Countries are set to being home a remarkable $1 trillion this year in oil revenues, according to the US Energy Department, with oil prices regularly topping $100 for the longest period in history.

ArabianMoney made this observation back in July in our presentation to the Agora Financial conference in Vancouver (click here). We noted that the UAE was earning an additional $250 million a week and Saudi Arabia in excess of $1 billion.

Recession follows

Of course such high oil revenues usually have a downside, and that is the recession that follows in the oil consumer countries. Is that not what we are now seeing in the global economy?

However, if the industrialized world goes into recession the most likely policy response is additional money printing by central banks. Last week they quickly cranked out the dollars to support the eurozone banks. This week the Federal Reserve meets to consider more quantitative easing.

Commodity prices tend to stay high when central banks are printing money, whatever the economic conditions. We last saw this is the late 1970s when the world economy was stuck in stagflation – low growth and high inflation levels – and the Oil States boomed with a high oil price at the same time.

Will it be any different this time? The Bloomberg article on the $1 trillion Opec revenue record today points out that the Arab Spring unrest is already resulting in wage increases for government employees all over the Oil States and new social and religious spending commitments.

UAE recovery

There are also strong indications of economic recovery in the UAE and particularly in Dubai, the hardest hit by the global financial crisis and real estate crash of late 2008. Oil liquidity is clearly helping this process and putting downward pressure on interest rates locally.

On the other hand, the same countries are still dealing with the debts left over from the 2008 crash. In Kuwait investment companies like Investment Dar and Global Investment House are rescheduling debts from that era. And Dubai’s Nakheel has only just emerged from its long debt rescheduling process and has just paid off its long-suffering contractors with Islamic bonds.

But it would be wrong to think that the unrest of the Arab Spring necessarily means a poor economic outlook for the Oil States. With oil revenues at their highest level in history this is actually just disguising the recovery now happening and the outlook is significantly better than expected.