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I have a stupid question that is a bit more general than the Saudi case. What's the advantage of selling oil and the using the dollars to buy treasuries or othe
by FrojoS 10y ago
I have a stupid question that is a bit more general than the Saudi case.
What's the advantage of selling oil and the using the dollars to buy treasuries or other conservative investment assets? Wouldn't it make much more sense for a country like Saudi Arabia to limit their oil production and finance their deficit of the sales directly instead of using royalties? This assumes that the value of oil will rather rise over time . In addition, for a producer as large as the Saudi's, this strategy should even raise oil prices.
- digi_owl 10y agoTo some degree they have the big dog of international politics by the balls...
- jeffcoat 10y agoNot so stupid: Start with the phrase "Hoteling's rule" for a century of academic analysis of that question. If you own an oil field, you have to balance a number of factors: * How is the price of oil changing, relative to overall inflation? You mentioned this one. But also, * Are technological improvements (either increasing the total amount of extractable oil in the world, or outright oil replacements) going to dramatically lower the price if I wait too long? * Is it still going to be my oil next year, or am I going to be first against the wall when the next revolution comes? My (unsophisticated, outsider) opinion is that if you see oil-producing countries selling as quickly as they can, that's weak evidence that they're worried about the last two bullets.