NCPA - National Center for Policy Analysis

Oil Price Drop Forcing Commodity-Rich Countries to Sell Off Foreign Assets

April 15, 2015

Now that oil prices have dropped by half to $50 a barrel, commodity-rich nations are fast drawing down those "petrodollar." Saudi Arabia, the world's largest oil producer, is the prime example of the swiftness and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in February, the biggest monthly drop in at least 15 years. That's almost double the drop after the financial crisis in early 2009, when oil prices plunged and Riyadh consumed $11.6 billion of its reserves in a single month.

Consider what has been happening around the world:

  • Oil futures in New York traded at $52.78 a barrel today, 49 percent lower than a year ago.
  • In Angola, reserves dropped last year by $5.5 billion, the biggest annual decline since records started 20 years ago.
  • For Nigeria, foreign reserves fell in February by $2.9 billion, the biggest monthly drop since comparable data started in 2010.
  • Algeria, one of the world's top natural gas exporters, saw its funds fall by $11.6 billion in January, the largest monthly drop in a quarter of century.
  • Excluding Iran, whose sales are subject to some sanctions, members of the Organization of Petroleum Exporting Countries are expected to earn $380 billion selling their oil this year, according to U.S. estimates. That represents a $350 billion drop from 2014 -- the largest one-year decline in history.

If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.

Analysts and officials anticipate that commodity-rich countries will continue selling off foreign assets through the year.

Source: Javier Blas, "Oil-Rich Nations Are Selling Off Their Petrodollar Assets at Record Pace," BloombergBusiness, April 13, 2015. 


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