Petrodollar spenders to shrug off oil price dip

By Dayan Candappa

DUBAI (Reuters) - Gulf Arab investors appear poised to shrug off the first decline in oil prices in six years and extend a spending spree that has created cities in the desert and triggered global bidding wars over acquisitions.

They will, however, have to contend with new challenges including slowing economic growth, the fallout from a stock crash and concern about how much more investment their countries can absorb.

Strategies for tackling these challenges will among the topics at the Reuters Middle East Investment Summit in Dubai next week. Chief executives from around 20 private and state-owned Gulf companies will attend the summit.

The tripling of international oil prices in the five years to July thrust the six Gulf Arab states - Oman, Qatar, Bahrain, Saudi Arabia, Kuwait and the United Arab Emirates -- on to the global economic stage.

Governments once content to park petrodollars in safe havens such as U.S. Treasuries began plowing windfall revenues into infrastructure, developing tourism, trade, financial services and industry to wean their economies off energy exports.

State funds and companies started scouring the globe for assets, from port operators to real estate.

"The strategy for recycling petrodollars has become more creative, ambitious and aggressive than in previous oil booms," said Simon Williams, regional economist at HSBC in Dubai.

GROWING WEALTH

As a result of these strategies and the rally in oil prices:

* The value of infrastructure projects planned in the region topped $1 trillion in 2006, according to the Middle East Economic Digest database.

* Gulf Arab investors spent around $94 billion on foreign mergers and acquisitions in the past 10 years, according to data provider Dealogic.

* Spurred by growing wealth among Muslim investors, the value of assets managed by Islamic financial institutions hit $800 billion last year, according to the Islamic Development Bank.

* Gulf investors are increasingly looking toward Asia to tap into the region's growth. After the September 11, 2001 attacks, the risk that assets in the United States could be targeted over security concerns is also driving this trend.

* Middle Eastern and Central Asian oil producers accumulated a current account surplus of $1.1 trillion between 2003 and 2007 compared to 150 billion in the previous five years, the International Monetary Fund says. The IMF urged governments to spend more to reduce the global trade imbalances threatening the U.S. dollar.

The IMF expects those surpluses to fall slightly this year in tandem with oil prices. U.S. light crude futures are forecast to average around $61 a barrel this year compared with record $66.24 in 2006, their first decline since 2001, a Reuters poll of analysts showed in March.  Continued...