OPEC sharply reduces dollar exposure
- By Steve Johnson and Javier Blas
Financial Times, London
Monday, December 6, 2004
LONDON -- Oil exporters have sharply reduced
their exposure to the US dollar over the past three
years, according to data from the Bank for
Members of the Organisation of Petroleum
Exporting Countries have cut the proportion of
deposits held in dollars from 75 percent in the
third quarter of 2001 to 61.5 percent.
Middle Eastern central banks have reportedly
switched reserves from dollars to euros and
sterling to avoid incurring losses as the dollar
has fallen and to prepare for a shift away from
pricing oil exports in dollars alone.
Private Middle East investors are believed to be
worried about the prospect of US-held assets
being frozen as part of the war on terror, leading
to accelerated dollar-selling after the re-election
of President George W. Bush.
The BIS data, in the organisation's quarterly
review, state that Opec countries' stock of
dollar-denominated deposits has fallen by 4
percent in cash terms since 2002 in spite of
Opec revenues' surging to record levels this
Opec officials say the cartel is trying to protect
its purchasing power per barrel, as Europe is its
largest trading partner. Opec imports from
Europe rose 29 per cent between 2001 and 2003
while those from the US fell by 14 percent,
according to Morgan Stanley, the US investment
Simon Derrick, head of currency research at Bank
of New York, said: "It makes sense to diversify
their reserves as much of their spending is in the
eurozone and Japan."
Opec officials also point to political motivations
after the 2001 terror attacks on the US.
Middle Eastern foreign exchange reserves are
relatively small -- those of Saudi Arabia, UAE,
Kuwait, and Qatar are estimated at $61 billion
by BNP Paribas -- but any switch may be seen
as indicating the mood of private investors in
the region, who control far greater wealth.
Hans Redeker, global head of foreign exchange
strategy at the French bank, said the Patriot Act,
introduced after September 11 to stop US
financial institutions being used by terrorists to
launder money, was worrying private investors.
"If you trade with what the US regards as a
'dodgy' bank, you are at risk of your assets in the
US being frozen," he said. "After the re-election
of George Bush, the Middle East started to sell
dollars like crazy due to the fears of assets
The BIS report also showed that, in spite of oil
prices having risen 85 percent since the fourth
quarter of 2001, overall OPEC bank deposits
have barely risen. "Oil reserves have not been
channelled into the international banking system
in the most recent cycle," the report said.
One school of thought is that Middle Eastern
businesses and individuals increasingly prefer
to invest at home, leading to sharp rises in real
estate and equity prices in many countries.
Another argument is that many Opec
governments are having to increase public
spending to support rapidly growing populations.
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