Petrodollar recycling

Islamic Finance has mainly replicated conventional finance methods inefficiently. It has thrived during periods of high oil prices, which allowed recycled petrodollars to implicitly subsidize its inefficient modes. As petrodollar flows end, the industry cannot afford the costs of its characteristic inefficiency.

A pile of plastic waste and other garbage next to children playing on a bridge in the Philippines. A registered scavenger, who mainly collects plastic waste to sell, walking in a landfill in Indonesia. Various sorting approaches and technologies have been developed.[1] They can be combined in various ways.[68] In practice no approach is 100% effective.[69][70][68] Sorting accuracy varies between recyclers, producing a market where products are poorly standardised. Last year Norway, which cranked up gas exports to Europe as Russia cut supplies, earned a record $161bn in tax from hydrocarbon sales, a 150% jump from 2021.

1. Because oil is traded in dollars, rising prices initially increase the demand for greenbacks.
2. In most of the Middle East, governments are being more cautious than usual with their extra revenue.
3. Mohsin Khan, the director of the IMF’s Middle East and Central Asia department, reckons that most governments in the region are budgeting on an oil price of only $30-40 a barrel for next year.
4. Many of these problems have technological solutions, though they bear a financial cost.
5. Around two-thirds of the increase in Russia’s export revenues since 2002 has gone on imports.

Petrodollars are the primary source of revenue and wealth for many members of the Organization of Petroleum Exporting Countries (OPEC) as well as non-OPEC oil and gas exporters including Russia, Qatar, and Norway. Petrodollars are not a distinct currency; they are simply U.S. dollars accepted as payment by an oil exporter. You shouldn’t be on the hook for the government’s failed fiscal policies and the ensuing economic repercussions. The petrodollar system is a complex system with a lot of moving parts and significant influence on domestic economics which makes staying informed a crucial part of preserving your wealth. One of the biggest challenges is that making new plastic is relatively cheap.

Pif’s alone reached $18bn in the year to September, against $48bn for more classic “portfolio” investments. Sovereign-wealth funds have also begun to provide debt to finance large takeovers, including by buy-out groups. On April 4th pif disclosed that it had acquired dozens of stakes in private-equity firms themselves. Figuring out what Gulf sovereign-wealth funds have been up to is much more difficult than it would be for, say, Norway’s fund. The Gulf institutions do not update their strategy, size and holdings live on their websites, as the one in Oslo does.

The end of the Second World War saw America play an outsize role in shaping international finance, first through the establishment of the Bretton Woods system. America effectively turned their dollar into the world’s dominant reserve currency, by pegging the value of an ounce of gold to US$35. The US was able to do this by virtue of possessing the largest gold reserves in the world at that time. Unfortunately, security concerns following the uprisings in 2011 prevented us from completing the follow-up field experiments to establish proto-credit unions in a very poor Egyptian governorate. The ultimate vision was to create networks of credit unions that would be vehicles of formal financial intermediation for the poor. Those institutions would simultaneously solve the scalability problems of current informal credit networks and serve as conduits for access to formal financial sectors dominated by large banks.

In October Mubadala, an Emirati sovereign-wealth fund, splashed $2.5bn on a German offshore-wind developer. Qia bought 10% of rwe, a German utility, to help it acquire a solar business in America. These investments are often made with a view to reimporting knowledge or capital. Sovereign-wealth funds largely invest in stocks via index funds, which are low cost and offer diversification. Today “alternative assets”—private equity, property, infrastructure and hedge funds—represent 23-37% of total assets for the three largest funds in the Gulf, according to Global swf, a data firm.

A recent report by ABN Amrofinds that while America’s trade deficit with OPEC has grown markedly since 1999, the European Union’s balance has barely changed (see chart 3). The rise in oil prices represents https://1investing.in/ a big redistribution of income from those who buy oil to those who produce it. Past periods of high prices have not lasted long, but this time oil producers’ extra revenues might prove to be more durable.

Returns on Petrodollar Recycling

The U.S. dollar’s global popularity does not depend on the good will of oil exporters. It is based on U.S. status as the world’s largest economy and goods importer, with recycling of petrodollars deep, liquid capital markets backed by the rule of law as well as military power. So far most of the extra money is being saved, not spent, so where is it going?

Petro-market civilization. (20 November,

Reorienting the industry toward managing financial flows for Muslim charities and remittances can serve simultaneously the purposes of financial development, poverty alleviation, and combating criminal finance. A lot of the money from the US’ energy investments in oil ends up getting “recycled” back into the domestic economy. The US stock market has consistently offered the highest returns when compared to foreign markets which is why oil-rich nations are more than happy to invest their petrodollar surplus in US companies. For example, the Saudi Public Investment Fund has injected more than $30 billion into the US stock market as of 2023.

Buy from Europe, lend to America

Even then, not all depolymerisation reactions are completely efficient and some competitive pyrolysis is often observed; the monomers, therefore, require purification before reuse. The feedstock recycling of polystyrene has been commercialised,[107] but global capacity remains fairly limited. In open-loop recycling, also known as secondary recycling, or downcycling, the quality of the plastic is reduced each time it is recycled, so that the material eventually becomes unrecyclable. RICs are not particularly important for single-stream recycling, as these operations are increasingly automated. However, in some countries citizens are required to separate their plastic waste according to polymer type before collection. Greater standing opens up fresh opportunities to invest in firms in “strategic” industries, including renewable energy.

The recycling activities of the largest producers of plastic waste have the greatest effect on global averages. This makes it difficult to draw accurate comparisons, especially as the published recycling rates vary. Most oil exporters peg their currencies to the dollar or resist appreciation through heavy intervention, in much the same way as China and other Asian countries have done. So should America and others demand that oil exporters revalue their currencies, as they have called on the Asians to do?

Although plastics were discovered before the 20th century, large-scale production was not realised until World War II. Nylon replaced silk in parachutes, while Perspex was a light-weight alternative to glass in aeroplanes. In January, Dubai International Capital took a $1 billion stake in DaimlerChrysler. This month, DP World, Dubai’s state-owned ports operator, made a £3 billion ($5.2 billion) bid for P&O, Britain’s biggest ports and ferries group.

Global recycling trade

Since last year sovereign-wealth funds have been dumping European stocks, to the benefit of America. Gulf funds have created specialist teams to survey China, India and South-East Asia. “This is where they’re going to sell more oil, so they want to invest in industries that will use that oil,” says the boss of a large investment-banking franchise. And at a time when others are walking back from China, nervous of rising tensions with America, they are doubling down.

America’s Plastic Makers has set a goal for all plastic packaging in the U.S. to be “reused, recycled, recovered by 2040,” Eisenberg said. But the industry appears to have championed recycling mainly for its public relations value, rather than as a tool for avoiding environmental damage, the documents suggest. “We are committed to the activities, but not committed to the results,” a vice president at Exxon Chemical said during a meeting in 1994 with staff for the American Plastics Council, a trade group. In electrostatic separators, the triboelectric effect is used to charge plastic particles electrically; with different polymers charged to different extents.

In addition to development projects and cross-border investment flows, the petrodollar also financed U.S. weapons exports that accelerated the Mideast arms race. Petrodollars are not a currency; they’re simply U.S. dollars that have been exchanged for crude oil exports. The term rose to economic and political prominence in the mid-1970s amid growing interdependence between the U.S. and crude oil exporters. The US holds the world’s largest debt at $32 trillion which is largely supported by petrodollar recycling. This level of borrowing is only possible because of the massive pool of USD floating around international markets. With federal spending breaking new records, this consistent access to cheap debt has been a major boon to US operations domestically and abroad.

The term gained currency in the mid-1970s when soaring oil prices generated large trade and current account surpluses for oil exporting countries. The historical reasons for the emergence of this peculiar industry are complicated. I tried to explain the phenomenon as state-sponsored Capitalist Islamism, which some Arab governments encouraged both to tame and/or coopt nationalist and socialist forms of Islamism, and in the process to monitor the finances of Islamist business networks. The massive infusions of petrodollars in the late 1970s and again in the 2000s fueled financial bubbles in oil-exporting countries and globally. The implicit subsidies to Islamic finance, which cover the costs of its inefficiency, represented a tiny fraction of the volume of recycled petrodollars. As the age of petrodollars nears its end, Muslim countries are likely to suffer exacerbated by their consumerism and continued financial underdevelopment.

In addition, if the plastic contains fillers, this may affect its density.[75] The lighter PP and PE fraction is known as mixed polyolefin (MPO) and can be sold as a low-value product,[76] the heavier mixed plastics fraction is usually unrecyclable. The industry introduced resin identification codes in 1988, which provided a standard system for the identification of various polymer types at materials recovery facilities. Global environmental movements in the 1960s and 1970s led to the formation of environmental agencies. Environmental awareness put plastic waste under scrutiny.[13] The earliest effort to abate plastic pollution was arguably the 1973 and 1978 MARPOL agreements, whose Annex V banned dumping plastics in the oceans.

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This post was written by James Habib