In What to Invest Oil Profit

Iranian Minister of Petroleum (right) in Russian Embassy in Tehran Celebrating National Day of the Russian Federation — Photo Edited by Author

Surging oil prices are the bee’s knees for oil exporters. Oil price hike increases revenue during a very short period of time for selected countries, leading to an incredible opportunity to invest or improve the currency flow domestically.

Iran’s oil revenue since 2005, during Ahmadinejad’s presidency reached more than $800 billion USD in only 8 years, which is a record in the past 100 years. This happens once in a blue moon. Ahmadinejad’s revenue from oil export was four times more than his predecessor and two times more than his successor. Statistics show almost half of the oil revenue for forty years of Iran’s revolution was earned in those 8 golden years. Oil prices hit $143 USD/BBL and for six months it was more than $100 USD/BBL.

The same goes for other oil exporters such as Saudi Arabia, Qatar, the UAE and Russia. However, actions taken with this massive revenue were different. Ahmadinejad imported more than $700 billion USD of goods, which means he spent whatever he earned. The upshot was liquidity of more than 600%. Sadly, this amount of money did not produce any significant fundamental changes in Iran’s industry nor has it left a footprint in global capital flow.

However, Persian Gulf countries have looked for a suitable solution not to return to where they were a few hundred years ago. Their solution includes mostly investment funds which help the oil profit flow to global markets.

The Public investment Fund (PIF) of the Kingdom of Saudi Arabia has had a flattering amount of investment in recent years. PIF has successfully obtained POSCO in South Korea, 5% share of Uber and 5% of CAPCOM -a Japanese video game, while investing $45 million USD in technology together with Softbank. Additionally, it has invested £300 million Pounds on Newcastle football club. They even made Alan Shearer wave the KSA flag.

Abu Dhabi Investment Authority and Investment Corporation of Dubai have expanded investments globally. Football teams like Manchester City in England, Melbourne City of Australia, New York City of the USA, Mumbai City FC of India, Girona FC of Spain, Yokohama of Japan and few others in five continents, all shouting Etihad Airways at stadiums.

Qatar Investment Authority is a cut above the rest with owning 15% of Volkswagen’s share, 3% of Royal Dutch Shell, 6.5% of Barclays Bank, 5% of Credit Suisse, 70% of Paris Saint Germain, 8.5 % of Glencore and Malaga of Spain. It is worth noting that Qatar’s $220 billion USD investment in FIFA World Cup 2022 is the biggest for any athletic event, in comparison to the $3.5 billion USD investment by South Africa in 2010.

These types of investments will come to fruition for Persian Gulf countries to lead global capital flow as well as maintaining a variety of profit. For example, Manchester City FC was purchased in 2008 for $212 million USD. New owners spent an additional $2 billion USD on the club and gave it a few years to grow. Manchester City’s value has multiplied more than two times within 10 years.

But this flow of money to football clubs is not only football-oriented. Supporters watch matches from Al-Jazeera TV channels at home, while others fly Qatar Airways directly to Doha to support their national team in World Cup 2022. No wonder, among all candidates of good football federations in Asia, Mohammad Bin Hammam of Qatar was chosen as president of the Asian Football Confederation in 2002 and paid off FIFA to bring a World Cup home twenty years later. I personally believe Qataris should give a global lecture on Macro-Investment.

Iran, on the other hand, keeps its revenue in the National Development Fund of Iran (NDFI) but it has limited domestic impact, and no significant role in the global market. Moreover, NDFI acted like an ATM for Iranian governments, facing an empty balance in some recent years.

Following an indirect effect of the Russian invasion on Ukraine, oil prices rising again, the same opportunity has repeated. The question is, will and can Iran take advantage of this situation?

Oil price hike has had a side effect which shifted global investment toward renewable energy. China, the US and Europe have increased investment in renewable energy to secure resource independence in the coming decades. This shift will eventually result in Iran and other oil exporters losing their advantage in the near future.

This is key since due to a change of consumption model in major oil consumers, this might be the last time oil prices may ever spike in history again.

Iran, in comparison to other Persian Gulf states, is a few times more populated, therefore oil profit will have to be distributed among more people, resulting in a reduced amount of leftover to invest. While Iran’s Economy is damaged significantly by US (and European) sanctions (mostly in recent years due to the Trump administration’s maximum pressure), Iran still has a durable demand in China. Iran and China have signed a 25-year plan which gives Iran an opportunity to invest oil profit directly in Chinese fundamental industries. China has recently introduced a 5-year plan of “dual circulation” that welcomes investors in fields like renewable energy, microprocessor, automotive, airplanes and even refineries that turn oil to dolls on spot, something Iran doesn’t have and can’t obtain easily.

It boils down to the planning of the Ministry of Financial Affairs of Iran to take advantage of the recent oil profit. No matter how fortitude this plan might be, it has to be able to withstand the US sanctions and ratchet up profit for 80 million Iranians.