- The Washington Times - Tuesday, March 7, 2006

Congressional efforts to stop an Arab port company from buying the lease on U.S. terminal operations are putting at risk a Middle Eastern lifeline for the U.S. economy, analysts say.

Revenue to Middle Eastern oil exporters has burgeoned with the doubling of prices since 2003 and sent the U.S. oil deficit soaring to $229 billion last year.

Economists say the wide gap can be sustained because the petroleum dollars are recycled back into U.S. markets. They estimate that Middle Eastern oil producers returned $100 billion in earnings to the United States last year by purchasing U.S. stocks and bonds, as well as physical assets such as the Helmsley Building in New York.

Total holdings of U.S. securities by Middle Eastern oil producers are estimated at $200 billion, about half in stocks and most of the rest in bonds.

“These are big investors now. If you drive them away, you’re going to drive the dollar down and the stock market down with it,” said John Rutledge, president of Rutledge Capital and a former Reagan administration adviser.

DP World, a ports operator based in Dubai, United Arab Emirates, is facing a protectionist move by Congress, Mr. Rutledge said, noting that the long tradition of open investment in the United States has enabled the economy to grow even with large deficits.

“We live by the golden rule: Whoever has the gold gets to rule,” he said. “We need to focus on keeping and attracting capital into the U.S.”

Mr. Rutledge blamed the congressional assault on racism. He said much of the money available to invest around the world is now outside U.S. hands.

“As wealth increases around the world, this type of thing will happen again and on a bigger scale,” he said.

Middle Eastern countries have accumulated cash from high oil prices and had $325 billion available for investment last year, the International Monetary Fund estimates.

“No country has benefited more from the global cash abundance than the United States,” said Joseph P. Quinlan, chief market strategist at Banc of America Capital Management.

“[The Organization of Petroleum Exporting Countries] remains flush with cash, and a sizable share of that is recycled,” he said.

The United States has continued to “reap the benefits of OPEC’s bounty” despite Arab objections to the 2003 invasion of Iraq.

The “ugly protectionist mood in Washington” also risks the $2.1 trillion of investments overseas by U.S. corporations because other countries might impose similar restrictions, Mr. Quinlan said.

“Someone please tell Washington before it’s too late,” he said.

The oil bonanza also has inspired a spending spree in the Middle East. Mr. Quinlan noted that U.S. exports to the region soared by nearly 50 percent last year.

Because of U.S.-Arab political tensions and cultural differences, the buying binge has largely benefited Europeans. Those countries reported a 64 percent share of Middle Eastern purchases from the developed world, he said.

Any U.S. restriction on Arab investment could strengthen the Middle Eastern preference for European and Asian goods or provoke an outright boycott of American products, analysts said.

Arab countries have a history of economic retaliation. The most notable example was the embargo in the mid-1970s that caused a spike in oil prices and sunk the U.S. economy.

Last month, Arabs staged a boycott of Danish goods to show their disapproval of published cartoons of the prophet Muhammad.

Peter Morici, a business professor at the University of Maryland, said Congress’ challenge to the ports deal cuts to the core of President Bush’s free-market policies but is justified by security concerns.

“Denying this purchase flies in the face of the free-trade and open-investment policies championed by every president since Roosevelt,” but those policies should be rethought, he said.

“We have pursued our free-trade and open-investment policy by using our market as a carrot and presenting the success of our economy as an example,” he said, yet few countries are following the lead of the United States.

“China severely limits U.S. equity holdings in critical industries like steel and automobiles, and most oil exporters don’t let U.S. companies own vital petroleum assets,” he said. “I don’t think we need to worry much about denying the UAE ownership of our ports.”

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