How to grab a share of the Gulf’s trillions

After years of neglect, the Gulf states are upgrading their energy infrastructure. Eoin Gleeson explains how investing in the contractors is the best way for you to cash in, and tips the best bet in the sector.

Spain made its fortune plundering South America. And Rome was built on the spoils of conquest. But the Gulf States are managing to accumulate the world's wealth without even crossing their own borders. According to a recent report entitled The Monumental Petro-Wealth Transfer, by Morgan Stanley currency analyst Stephen Jen, at $130 a barrel about $1bn a day is being added to the region's trade surplus. At these prices, the Gulf States are sitting on reserves worth almost $65trn about three times the entire value of the world's equity markets. That translates to some $4m per citizen of the Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates and Qatar.

But unlike the 1970s oil spike when most of the petrodollar spoils were poured into New York, London and Zurich to be invested in Treasury bills, or spent on consumer goods the Gulf States are now investing the money at home. From 1978-1981, 75% of the increase in oil cartel Opec's export revenues was spent on imports of goods and services, notes The Economist. Today, the International Monetary Fund (IMF) estimates that only 40% of the windfall is being spent. And this time it's not just being spent on empty consumption. Just as the Romans built reservoirs and aqueducts, the city states of the United Arab Emirates have been building desalination plants. Skyscrapers, power plants and airports have sprung out of the desert. They are building a future for themselves beyond oil an empire built on financial services, luxury tourism and technology.

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Eoin came to MoneyWeek in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.