From the late 1990s to 2007, oil prices had risen to a historical record. This sustained soaring of prices has resulted in a massive transfer of financial assets from oil consuming regions, mainly the US, Europe and Asia, to major oil-exporters—members of the Organization of Petroleum Exporting Countries (OPEC), Russia and Norway. In order to manage these large and fast-growing oil revenues, exporting countries have set up government-owned and government-managed oil funds.

These oil funds constitute a significant component of broader Sovereign Wealth Funds (SWFs). SWFs are government investment vehicles funded by foreign exchange assets, which manage those assets separately from official reserves. In contrast to traditional reserves, which are typically invested for liquidity and safety, SWFs seek a higher rate of return and may be invested in a wider range of asset classes. They generally fall into two categories based on the source of the foreign exchange assets: commodity funds (established through commodity exports, either owned or taxed by the government) and non-commodity funds (established through transfers of assets from official foreign exchange reserves). This study focuses on the first category, particularly oil funds.

These state-run investment pools are rapidly growing in both number and size. A recent study published by Morgan Stanley estimates that by 2015 the financial assets of oil funds and other SWFs will be approximately $6 tn each. These massive financial resources have been utilized in huge investments in partnership with multinational corporations all over the world. The large cross-border holdings in official hands are at sharp variance with the general conception of a market-based global economy and financial system in which decision making is largely in the hands of numerous private agents. The rise in the number and size of these oil funds represents a dramatic increase in the role of governments in the ownership and management of international assets. Consequently, the management of these funds and their potential impact on economic systems domestically as well as their role in global business have been under increasing scrutiny.

Analyst Magazine, Gulf Economies, Organization of Petroleum Exporting Countries, OPEC, Sovereign Wealth Funds, SWFs, Foreign Exchange Assets, Economic Systems, Global Economy, Organization for Economic Cooperation and Development, OECD, International Monetary Fund, IMF, International Working Group, IWG.