INTELLIGENCE REPORT DISTRIBUTION OF OPEC INVESTMENT: SEPTEMBER 1974

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500200002-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 12
• Document Creation Date: December 16, 2016
• Document Release Date: November 9, 2004
• Sequence Number: 2
• Publication Date: February 1, 1975
• Content Type: REPORT

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Intelligence Report
Distribution of OPEC Investment; September 1974
Confidential
ER IR 75-2
February 1975
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Distribution
of OPEC Investment:
September 1974
Boosted by higher oil earnings, the foreign official assets of OPEC members
increased to US $60 billion by 30 September 1974, nearly three times the level at
the beginning of the year. The international investment pattern is quite similar
among the members, despite their diversities. OPEC wealth is concentrated:
? In highly liquid assets - 65% in bank deposits and 20% in government
securities. Less than 10% is in private bonds, loans, equities, and real
estate, and only 5% in gold and IMF holdings.
? In the financial markets of the major developed countries - about 40%
in London and 25% in New York. Less than 5% is located outside of
Western Europe, the United States, and Japan.
*In dollar-denominated assets - about 70% is in dollars. Sterling accounts
for another 10%, and other currencies, gold, and IMF holdings, for 20%.
OPEC's foreign assets probably totaled $80 billion by the end of 1974 and
will increase to about $140 billion by the end of this year. No sharp shift in
the existing investment pattern is expected, but the share in longer term assets
will continue to grow slowly. The concentration of investment in dollars will persist.
There is little prospect that changes in OPEC investment patterns will significantly
ease the recycling problem.
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Note: Comments and queries regarding this report are welcomed. They may be
directed to of the Office
25X1 of Economic Research,
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1. This report is the first in a series analyzing the distribution of the OPEC
states' foreign official assets.* Detailed estimates of OPEC foreign investor mt, by
type of asset, location, and currency arc presented. Prospects for 1975 wid their
implications are also considered.
2. The distribution of OPEC investment presented in this report. is based
on data for 30 September 1974. While OPEC foreign official assets increased some
$20 billion in the fourth quarter of 1974, the proportional distribution among
assets, locations, and currencies probably did not change appreciably.
Crowing OPEC Wealth
3. The foreign official assets of the OPEC states nearly tripled from
$21 billion at the end of 1973 to $60 billion by 30 September 1974 (see the
chart and Table l) as higher oil prices boosted producer earnings. These assets
probably totaled about $80 billion by the end of the year.
4. A few oil producers control the bulk of OPEC wealth. The two largest -
Iran and Saudi Arabia -- account for nearly 35% of the total, and the five largest -
Iran, Kuwait, Nigeria, Saudi Arabia, and Venezuela - about 70%.
5. The bulk of OPEC's foreign assets consists of reserve;issets - gold, SDRs,
IMF reserve position, bank deposits, and government securities. On 30 September
1974, these totaled $51 billion - an amount equivalent to the I otal foreign reserves
of the rest of the world less West Germany. At the end of 1974, their international
reserves probably approached $70 billion.
6. This buildup is substantially greater than indicated in IMF statistics. The
IMF data exclude Qatar and the United Arab Emirates, and assets held by official
agencies other than the central monetary authority, such as the Kuwait Ministry
of Finance and the Venezuelan Investment Fund.
7. Holdings of other foreign assets -- corporate bonds, loans, equities, and
real estate - also grew rapidly during the first nine months of 1974. They increased
* The members of OPEC (the Organization of Petroleum Exporting Countries) are Algeria, Ecuador,
Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
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Other
Producers
OPEC
FOREIGN OFFICIAL ASSETS
0.13
0.29
0.64
0.23
0.22
0.98
1968 1969 1970 1971 1972 1973 30 September 1974
505050 2.75
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Table I
OPEC
Foreign Official Assets
31 December 1973
30 September 1974
Reserve
Assets
Other
Assets
Total
Assets
Reserve
Assets
Other
Assets
Total
Assets
Total
18,755
2,352
21,107
51,364
8,189
59,553
Algeria
1,143
14
1,157
1,987
14
2,001
Ecuador
241
3
244
343
3
346
Indonesia
807
41
848
1,589
41
1,630
Iran
1,237
25
1,262
6,577
138
6,715
Iraq
1,553
9
1,562
3,623
709
4,332
Kuwait
3,700
775
4,475
6,694
1,906
8,600
Libya
2,127
4
2,131
3,682
4
3,686
Nigeria
592
19
611
4,087
19
4,106
Qatar
360
38
398
1,000
100
1,100
Saudi Arabia
3,875
800
4,675
12,134
2,910
15,044
United Arab Emirates
700
600
1,300
2,322
1,978
4,300
Venezuela
2,420
24
2,444
7,326
367
7,693
from $2 billion at the end of 1973 to $8 billion by the end of September. Saudi
Arabia has the largest non-reserve assets, consisting primarily of
government-guaranteed loans to public utilities. Those of Kuwait and the United
Arab Emirates are primarily equities and real estate.
Investment Policy
8. The international investment pattern of individual OPEC states is quite
similar despite political, religious, and geographic diversity and sharp differences
in the size of holdings. Their wealth is concentrated in liquid assets, primarily
dollar denominated, located in the financial markets of the major developed
countries, particularly London and New York (see Table 2).
9. The similarity in investment pattern is due to shared investment goals
and a common external environment. The investment objectives of the OPEC states
include:
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Table 2
OPEC
Foreign Official Assets as a Percent of Total
30 September 1974
Percent of Total I (US $60 Billion)
GoldISDReI Non.
IMF Bnnk Government Reserve
Total Total Position Deposits Securities Assets
Total ................................... 100 00 5 85 10
Amount in US dollars .................. 70 60 2 60 10
United States ............ . .. . ...... . ... 25 25 Ncgl. 15 11) Negl.
United Kingdom
Dollars .............................. 30 25 ... 2.5 0
5
Sterling ............................. 10 10 Negi.
Other currencies.. ............... Negi. Nogl. ... N gl. 0 Negl.
Continental Europe and Japan
Dollars ....... . . .............. . ...... 15 10 ,., It) 5
Other currencies . . ................ . ... 10 10 ... 10 ;Vogl.
IMF .. . ... ........................... 5 5 Ncgl? ' ,,, Nvgl.
World Bank ........................... Negl. Nogl, ,,. Noel. Ncgl.
Other ................................. 5 5 Negl. Negl.
I All data are rounded to the nearest 5%.
2 An ellipsis Indicates that no Investment is likely.
? Insuring their holdings against political seizure;
? Maintaining - or increasing - the real value of their assets; and
? Retaining effective control over their investments.
These goals are pursued in a setting in which London and New York are the
dominant international financial centers, and the dollar is the principal medium
in international trade and investment. About three-fourths of the developed
countries' financial assets are dollar denominated, and less than 10% are
denominated in currencies other than the dollar or sterling.
Asset Composition
10. Almost all of OPEC's wealth is in highly liquid assets (see Table 3). Bank
deposits - predominantly with maturities of less than 90 days and often overnight
or on demand -- account for about 65% of the total. On 30 September, OPEC's
bank holdings approached $40 billion. This is far in excess of short-term
requirements, but bank deposits are relatively safe, easily managed, and can be
channeled through intermediaries to make seizure unlikely. Moreover, in 1974 the
return on short-term instruments was higher than that on many longer maturity
assets.
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Table 3
OPEC
Foreign Official Assets, by Type
30 September 1974
Percent of Total
GoldlSDRs1 Non.
IMF Bank Government Reserve
Total Position Deposits Securities Assets
OPEC .................. 100 5 85 10
Algeria .................. 100 15 85 Negl.
Ecuador ................. 100 10 90 Negl.
Indonesia ................ 100 5 911 5
Iran .................... 100 5 80 Ii Negl.
Iraq .................... 100 5 75 i, I5
Kuwait ................. 100 Negl. 7.,
25
Libya ................... 100 5 95 Negl.
Nigeria .................. 100 5 115 Negl.
Saudi Arabia ............. 100 Negl. 05 15 20
Venezuela ............... 100 15 75 1(1 N egl.
All data are rounded to the nearest 59/4.
11. Another 20% of OPEC foreign wealth is in government securities, largely
US Government issues. While subject to greater risk of seizure, government securities
are financially secure and easily managed.
12. The type of asset held varies little among producers. Countries with
higher-than-average absorptive capacities for imported goods, such as Indonesia,
Iran, and Venezuela, have a somewhat larger share of their holdings in the most
liquid assets - bank deposits and government securities. Even Kuwait and Saudi
Arabia, however, with very large foreign balances relative to foreseeable exchange
requirements, maintain more than 75% of their holdings in such assets.
Asset Location
13. OPEC's wealth is located predominantly in financial markets of major
developed countries (see Table 4). Holdings in London, including the Eurocurrency
market, and New York account for about 65% of the total. At the end of
September, OPEC had invested about $25 billion in the United Kingdom and about
$15 billion in the United States. Most bank holdings are in London because of
generally higher interest rates there, particularly on short-maturity deposits. The
share of assets in the United States declined during the oil embargo, but has since
grown considerably.
14. About 25% of OPEC's foreign assets are located in continental Europe
and Japan - half in Switzerland. About 5% are held through the International
Monetary Fund and the World Bank.
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Table 4
OPEC
Foreign Official Assets, by Location
30 September 1974
OPEC .....................
Total
100
United
States
25
United
Kingdom
40
Continental
Europe
and Japan
25
IMF/
World
Bank
5
Other
5
Algeria ......................
100
1..0
35
50
5
Negl.
Ecuador ....................
100
25
10
5
5
55
Indonesia ...................
100
50
15
15
5
15
Iran .......................
100
15
05
10
10
Negl.
Iraq .......................
100
10
Negl.
50
Negl,
40
Kuwait ....................
100
25
00
10
Negl.
5
Libya ......................
100
20
5
05
Negi.
10
Nigeria .....................
100
40
55
Negl.
5
Negl.
Saudi Arabia ................
100
15
55
25
5
Negl.
Venezuela ..................
100
05
5
10
10
10
I All data are rounded to the nearest 5%.
15. Most OPEC states hold more than half their assets in London and New
York; the exceptions are Algeria, Ecuador, Iraq, and Libya. Algeria, because of
its ties to France, keeps a large share of its holdings in Paris. Ecuador, with relatively
few foreign assets, is believed to rely on the Caribbean and Central American dollar
markets. Iraq is unique among the OPEC states, having substantial investments in
Communist countries, as well as in Switzerland and West Germany. Libya, which
for political reasons sold off most of its sterling in 1972, is believed to concentrate
its investment in Switzerland and other continental European countries.
Currency Composition
16. About 70% of OPEC's foreign assets are dollar denominated (see
Table 5). Dollar holdings totaled more than $40 billion on 30 September.
Producers apparently prefer greater diversity, but a number of factors have
discouraged investment in assets denominated in other currencies. German mark
and Swiss franc investment has been inhibited by capital controls and limited market
size. Investment in most other currencies, including sterling, has been limited by
concern over their future value. The dollar market is presently the only market
of sufficient size, depth, and openness to satisfy investment objectives.
17. Sterling, the other major reserve currency, accounts for another 10% of
OPEC wealth. Sterling's share dec':ned through the first nine months of 1974 as
British economic conditions deteriorated and uncertainty about the pound grew.
On 30 September, OPEC sterling investment totaled about $6 billion.
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Foreign Official ANNCtU, by Currency
30 Seplrmber 1974
Percent of Total
OPEC ...............
Total
100
GoldISDRNI
IMF
PoNition
5
Dollars
70
Sterling
10
Other
15
Algeria ...............
100
15
70
Negl.
15
Ecuador ..............
100
10
85
Negi.
5
Indonesia .............
100
5
80
Negl.
15
Iran .................
100
5
00
Negl.
5
Iraq .................
100
5
35
Negl.
(III
Kuwait ..............
100
Negl.
00
25
In
Libya ................
100
5
00
Negl.
:Ili
Nigeria ...............
100
40
55
Negl.
Saudi Arabia..........
100
Negi.
80
10
10
Venezuela ............
100
16
80
Negl.
5
18. About 15% of OPEC wealth is in other currencies, largely German marks
and Swiss and French francs. Only 5% is in gold and IMF assets, including the
IMF Oil Facility. No OPEC state has sought to significantly increase its gold
holdings.
19. Most OPEC states hold at least 70% of their wealth in dollars and 10%
or less in sterling. The sterling area countries - Kuwait and Nigeria - keep a larger
share of their holdings in sterling. The radical Arab states - Iraq and Libya --
hold more of their wealth in assets denominated in currencies other than the dollar
or sterling.
Prospects and Implications
20. During 1975, OPEC's wealth will increase about $60 billion, to $140
billion, assuming oil prices and production remain near present levels. Barring a
new Middle East war, major shifts in the distribution of existing OPEC assets are
highly unlikely.
21. The share of longer maturity assets will probably increase in 1975 as
short-term interest rates continue to decline and OPEC countries gain investment
experience. Purchases of government securities should rise, and a number of
countries may establish investment funds or offices designed to invest more heavily
in loans, equities, and real estate.
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22. The United States, because of the size and depth of its financial market,
will continue to attract OPEC investors unless a new Arab-Israeli war increases
the perceived risk of seizure. Direct loans, particularly in return for technology
and other development assistance, will absorb a larger share of the OPEC surplus
than in 1974 -- likely recipients, include France and Italy. OPEC investment through
international organizations will also grow as a number of multilateral recycling
proposals now under discussion are implemented.
23. Changes in the currency denomination of OPEC holdings will reflect
decisions about the composition of new investment rather than a change in present
holdings. Size and depth of the market will continue to be a primary criterion.
This assures that most OPEC assets will be dollar denominated. However, interest
rates and expectations about exchange rate movements will also be considered.
Dollar holdings will probably total nearly $100 billion by the end of 1975. The
share of OPEC investment in sterling should decline so long as the pound continues
to appear overvalued. The potential for shifts away from the dollar and sterling
is limited by the fact that countries such as West Germany and Switzerland would
tighten capital controls rather than allow a major influx of OPEC funds.
24. There is little prospect that changes in OPEC investment patterns will
significantly ease the recycling problem. A shift to longer term assets by OPEC
members will not increase private lending to needy countries because such loans
are mainly limited by their high risk. Direct lending to importing countries will
contribute to :ecycling but is likely to cover only a fraction of the deficits of
hard-hit countries such as Italy.
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