Only a few decades ago, American oil companies stood among the petroleum giants that controlled most of the world's oil, and their profits largely were recycled back into the United States.
But times have changed. "For some time now," writes former Treasury Secretary Lawrence H. Summers, "the large flow of capital from the developing to the industrialized world has been the principal irony of the international financial system."
In today's world, a tiny Persian Gulf state can rescue a major American bank from financial catastrophe using money earned from selling millions of barrels of oil. And politicians in Europe and the United States are nervous about their nations' companies being bought up by cash-swollen petrostates.
"Their wealth is a reminder to our politicians that the West is no longer the force it once was in the world," wrote Michael Gordon, fixed-income director at Fidelity International, a giant investment-management firm. "And just maybe, business leaders are ahead of the politicians in welcoming this infusion of new money into the global financial system."
Last year, U.S. lawmakers of both parties scuttled a deal that would have allowed a company owned by the government of Dubai to run six major U.S. ports. "This proposal may require additional congressional action in order to ensure that we are fully protecting Americans at home," wrote House Speaker J. Dennis Hastert, R-Ill.
Political jitters over the wide range of foreign government funds invested don't all center on the oil-rich countries. China, which has grown rich selling cheap goods to the rest of the world, has set alarm bells ringing on Wall Street over attempted investments in American and other Western companies. In 2005, a political firestorm forced China's state-owned oil company to abandon a bid to buy Unocal, a U.S. oil company.
China's sheer size and strategic importance guarantee continuing interest in its investment projects. But high oil prices in 2007 have focused attention on efforts by oil-exporting countries to invest their profits — totaling a mind-boggling $3.4-$3.8 trillion — much of it in the West, according to the McKinsey Global Institute.
And the developing world's cash situation is expected to get even more dramatic in the future. "The most conservative assumptions you could think of, absent some catastrophic event, would have [these assets] double by 2012," Diana Farrell, the institute's director, said in December.
In fact, even if the price of oil falls from current levels (now above $90 a barrel) to $50 a barrel, petrodollar assets would expand to $5.9 trillion by 2012, the institute says, fueling investment at a rate of about $1 billion a day.
Political resistance to Middle Eastern oil profits buying up American companies surfaced even before oil prices skyrocketed in 2007. In 2006, Dubai PortsWorld bought a British firm that ran port operations in New York City, New Jersey, Philadelphia, Baltimore, Miami and New Orleans. Lawmakers of both parties lost no time in denouncing the deal with an Arab nation as a threat to national security, and the government of Dubai eventually sold its interest in the U.S. operations.
But some international finance experts urge politicians and others to look at other implications, such as whether foreign-owned companies could end up unduly influencing domestic policy. "What about the day when a country joins some 'coalition of the willing' and asks the U.S. president to support a tax break for a company in which it has invested?" Summers asked, using Bush administration terminology for U.S. allies in the Iraq War. "Or when a decision has to be made about whether to bail out a company, much of whose debt is held by an ally's central bank?"
A firm owned by the government of Dubai backed out of a 2006 deal to run six U.S. ports after U.S. lawmakers protested. (AP Photo/Kamran Jebreili)
In the 1950s, the oil-rich countries worried about foreign involvement in their economic and political affairs. For instance, the Iranians did not take kindly to the U.S.-organized 1953 coup in Iran that ousted Prime Minister Mohammed Mossadeq, who had nationalized a British-owned oil company. And oil-producing countries also resented foreign oil companies' control of petroleum pricing and marketing. Eventually, most countries nationalized their oil resources.
Now the situation is almost reversed, with the industrialized countries coming to depend on the oil countries for oil as well as cash.
But that's not necessarily a bad thing, some experts note, because investments in the industrialized world give the oil countries a stake in maintaining stability and prosperity, not to mention a market for petroleum. "If the U.S. goes in the tank, the whole world goes in the tank," says Kenneth Medlock III, an energy research fellow at the James A. Baker III Institute for Public Policy at Rice University in Houston. "That would put a crimp in oil demand."