OPEC Cuts Dollar Exposure Over Past 3 Years

The report said Middle Eastern central banks appear to be switching reserves from dollars to euros and sterling to avoid incurring losses as the dollar has fallen and to prepare for a shift away from pricing oil exports in dollars alone, the report said.

OPEC Cuts Dollar Exposure Over Past 3 Years -FT

DJ OPEC Cuts Dollar Exposure Over Past 3 Years -FT

SINGAPORE (Dow Jones)–Oil exporters have sharply reduced their exposure to

the U.S. dollar over the past three years, the Financial Times reported on its

Web site Tuesday, citing the Bank for International Settlements.

Members of the Organization of Petroleum Exporting Countries have cut the

proportion of deposits held in dollars to 61.5% from 75% in the third quarter

of 2001, the FT reported.

The report said Middle Eastern central banks appear to be switching reserves

from dollars to euros and sterling to avoid incurring losses as the dollar has

fallen and to prepare for a shift away from pricing oil exports in dollars

alone, the report said.

In addition, private Middle East investors are believed to be worried about

the prospect of U.S.-held assets being frozen as part of the war on terror, the

report said.

The BIS data, in the organization’s quarterly review, state that OPEC

countries’ stock of dollar-denominated deposits has fallen by 4% in cash terms

since 2002 despite OPEC revenues surging to record levels this year.

OPEC officials say the group is trying to protect its purchasing power per

barrel, as Europe is its largest trading partner. OPEC imports from Europe rose

29% between 2001 and 2003 while those from the U.S. fell by 14%, according to

Morgan Stanley, the U.S. investment bank.

Middle Eastern foreign exchange reserves are relatively small – those of

Saudi Arabia, the United Arab Emirates, Kuwait and Qatar are estimated at $61

billion by BNP Paribas – but any switch may be seen as indicating the mood of

private investors in the region, who control far greater wealth, the FT report

said.

Hans Redeker, global head of foreign exchange strategy at the French bank,

said the U.S. Patriot Act, introduceter Sept. 11 to stop U.S. financial

institutions being used by terrorists to launder money, was worrying private

investors.

“If you trade with what the U.S. regards as a ‘dodgy’ bank, you are at risk

of your assets in the U.S. being frozen,” Redeker said. “After the reelection

of George Bush, the Middle East started to sell dollars like crazy due to the

fears of assets being frozen.”

The BIS report also showed that, in spite of oil prices having risen 85

%since the fourth quarter of 2001, overall OPEC bank deposits have barely risen.

“Oil reserves haven’t been channeled into the international banking system in

the most recent cycle,” the BIS report said.

One school of thought is that Middle Eastern businesses and individuals

increasingly prefer to invest at home, leading to sharp rises in real estate

and equity prices in many countries. Another argument is that many OPEC

governments are having to increase public spending to support rapidly growing

populations, the FT reported.

(END) Dow Jones Newswires

12-06-04 1946ET

DJ info:

N/DJCS,N/DJOS,N/OSAG,N/OSCM,N/OSEN,N/OSFR,N/OSME,N/OSOV,N/OSTR,N/BIS,N/DJFX,N/D

WI,N/FCTV,N/FRX,N/OPC,N/PET

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