Sovereign wealth funds and preserving oil wealth

Golfers against Dubai skyline
Dubai, February 4, 2016: Sovereign wealth funds are like retirement plans for oil-dependent economies to guard against the day when their wells run dry (source: dpa)
  • Sovereign wealth funds are rising in importance as oil and gas prices decline
  • Some countries risk depleting SWFs used for stabilization purposes
  • Funds’ ability to reduce financial risk depends on approach of their state owners

Declining prices have translated into lower revenues for many oil producing countries, with the economic repercussions particularly significant for those that are oil dependent. One consequence has been fluctuating performance in some sovereign wealth funds (SWFs), as withdrawals and asset liquidations have become more common after commodity prices collapsed.

This does not mean the funds have failed in their purpose, since the discipline and priorities of their government owners may vary. Indeed, petroleum-based SWFs will almost certainly feature prominently in modern economies long after the physical resources are gone.

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