Document Type

Honors Capstone Project

Date of Submission

Spring 5-1-2011

Capstone Advisor

Matthew Huber

Honors Reader

Derek Laing

Capstone Major

International Relations

Capstone College

Citizenship and Public Affairs

Audio/Visual Component

no

Capstone Prize Winner

no

Won Capstone Funding

no

Honors Categories

Social Sciences

Subject Categories

International and Area Studies | International Business

Abstract

The subject of petrodollar recycling has frequently captured the interest of academics, politicians and the media. Specifically, the issue typically boils down to one central question: where exactly are the petrodollars—revenue earned from the sale of oil—flowing? According to traditional scholars like Bernard Mommer and Terry Lynn Karl the recurring argument is that in oil-exporting nations, oil revenues are channeled directly into the hands of a few government officials resulting in corruption, inequality and economic decay.

However, the main limitation of this traditional argument is that it tends to focus solely on the dynamics between the national level and local communities. With the increasing trends of globalization and financialization, I find the traditional viewpoint to be outdated and too narrow in focus. Hence, I argue that when the perspective is expanded from the national to the international an intriguing aspect materializes: in reality, the majority of oil revenues are actually flowing out of the state and into global financial markets.

Before I examine how petrodollars reach international financial markets it is necessary to review the traditional literature regarding oil-exporting nations. Hence, section one assesses the classic tale of oil-exporters and concludes with the introduction of a new actor for managing oil revenues: Sovereign Wealth Funds (SWFs). Since they are a relatively unknown concept, section two serves as a general introduction to sovereign wealth funds. Next, section three elaborates on the previous discussion by providing an in-depth case study of the main Middle Eastern funds while section four examines the impact of these funds on international finance. Lastly, in section five I return to the traditional concept of the resource curse and examine how sovereign wealth funds impact their domestic economies.

Over the past ten years, the rise of sovereign wealth funds as major players in international finance has generated a wide array of sensationalist perspectives and has left the general public with a sense of confusion regarding the true nature of sovereign wealth funds. Thus, my goal is to provide a more realistic and pragmatic view of the role of sovereign wealth funds in both their international and national space.

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

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