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International Oil Prices Continue to Slump and the Petrodollar System Faces Depletion
Just this past September, Saudi Arabia's sovereign wealth fund began its second round of redemptions this year, with the total withdrawals likely to exceed US$70 billion in one year. This was because the plunge in oil prices led to a decline in its oil revenue and increased financial pressure.Immediately afterwards, Bloomberg predicted that Norway’s sovereign wealth fund, which manages US$830 billion in assets, may begin to withdraw capital as early as next year. In recent years, the Norwegian government has been using growing oil export revenue to fill its fiscal deficit. However, last year, international oil prices plummeted by nearly 50%, and the Norwegian government's oil-related tax revenue dropped sharply by 42%. Next year's government budget may be unable to make ends meet.
When will the plunging oil prices bottom out and rebound? Will the economic downturn and the phenomenon of making ends meet create a "resonance" in oil-producing countries? Is the petrodollar system really about to collapse?
Gianmarie Yamilessi Ferretti, deputy director of the Research Department of the International Monetary Fund, specifically expressed concerns about oil prices and oil-producing countries in an exclusive interview recently. "The performance of large emerging market economies is worse than expected. For example, falling oil prices and commodity prices, geopolitical pressures, etc. are the main contradictions. Brazil's economic growth this year is expected to decline by 3%, and Russia will decline by nearly 4%. This is for emerging markets It’s terrible for the country.”
Sovereign wealth funds of oil-producing countries may withdraw their investments one after another
Petro-dollar refers to the increase in oil revenue of oil-exporting countries due to the substantial increase in oil prices in the mid-1970s. Data shows that oil-producing countries in the Middle East own 45% of global sovereign wealth funds, and their main source of funds is the export of oil and other resource commodities.
The Saudi monetary authority's foreign exchange reserves have fallen by nearly $73 billion since oil prices began to fall last year as the government maintains spending to prop up the economy and pay for its military campaign in Yemen.
The global economy is sluggish, oil supply exceeds demand, prices have plummeted, and the rebound is still weak. When oil prices were cut in half at the beginning of the year, Saudi Prince Alwaleed bin Talal insisted: "It will be difficult for oil prices to return to US$100 per barrel, but Saudi Arabia will never reduce production."
This persistence stems from the determination to bet against the US "shale gas revolution". "We can see how many shale gas production companies have closed down. Although the halving of oil prices has a great impact on us, we will maintain the status quo for the time being and see how much new production will emerge. After all, the decline in oil prices will make many new projects It’s hard to move even an inch," the Saudi prince said.
In August last year, the proportion of oil imported by the United States from OPEC dropped to 40%, the lowest level since May 1985.
Saudi Arabia's "stubbornness" has also caused oil prices and the fiscal revenues of other oil-producing countries to suffer to some extent, with Norway being a prominent representative.
Bloomberg predicts that Norway’s sovereign wealth fund may begin divestment as early as next year. Faced with the impact of the sharp drop in oil prices, the world’s largest sovereign wealth fund is running out of funds and is increasingly likely to change its expansion strategy over the past 20 years. It is the latest evidence that the petrodollar is beginning to dry up.
In recent years, the Norwegian government has used growing oil export revenues to fill its fiscal deficit while expanding the size of its sovereign wealth fund. Last year, international oil prices plummeted by nearly 50%, and the Norwegian government's oil-related tax revenue dropped sharply by 42%. Next year's government budget may be unable to make ends meet.
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