OPEC Going Broke, Dumping Dollars. Is That Good Or Bad?

When oil prices fell out of bed last winter there was much hand-wringing over the fate of the former beneficiaries of high-priced crude. Trillions of dollars of junk bonds issued by frackers, for instance, might default, oil field services companies could fail, and layoffs in the oil patch might swamp the nascent employment recovery.

Some of this has happened, though not on the apocalyptic scale the worst-case scenarios suggested. More might be coming, but right now it’s not headline news in North America.

For OPEC, however, the sudden 50% diminution in export revenue is a clear and present danger, and the response is noteworthy:

Oil-Rich Nations Are Selling Off Their Petrodollar Assets at Record Pace

Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves.

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In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club.

Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.

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