US open to more Gulf investment
But US Treasury Secretary Henry Paulson said Gulf oil producers should open up their hydrocarbons sector to foreign capital to increase crude output capacity and restore balance to the oil market following a sharp rise in prices.
Paulson rejected Opec's view that speculation was to blame for the increase, which he said had been the result of an imbalance between supply and demand.
He told the US Business Council during a visit to Abu Dhabi that he had assured regional leaders that Washington would continue to welcome foreign investment. He has also visited Saudi Arabia and Qatar.
He referred to the controversy surrounding Dubai Ports World's bid to run six major ports in the US, which was opposed by some leading political figures there who said it would compromise security.
"Some here worry about growing protectionist sentiment in the United States, and they also worry specifically that US sentiment toward Middle East investment has been permanently affected by the DP World case," he said at the Emirates Palace hotel.
"My response is the same as that expressed by President Bush during his Middle East visit two weeks ago. As we seek to open new markets abroad, America will keep its markets open at home to investment from private firms and from sovereign wealth funds. We reject measures that would isolate us from the world economy," he said.
He said since becoming Treasury Secretary in the aftermath of the DP World case, he had actively worked to ensure that the US continued to benefit from open investment.
"In fact in the two years following DP World the number of US acquisitions by Gulf country investors rose by more than 100 per cent and the combined value of those deals rose by more than 400 per cent.
"Despite what the headlines may say, our investment review process has looked at just over 10 per cent of the publicly announced acquisitions by Gulf investors, and all of those transactions were allowed to proceed.
"We have reaffirmed, at every opportunity, the longstanding US commitment to open economies. One of my highest priorities remains challenging the mistaken notions that underlie protectionism – with facts, figures and a firm belief in a future that holds more promise, not less," Paulson said.
Turning to SWFs, he defended Washington's proposal that the funds work closely with the IMF to agree guidelines for their activities.
"The IMF expects to produce these recommendations this fall. I will expand on this issue for a moment because our objectives are not always fully understood.
"Among some SWF managers our initiative has raised concerns that we are trying to limit the scope of their activities or release privileged information. In fact, our purpose is just the opposite.
"We are trying to quell calls for restrictions by urging SWFs to endorse best practices to create a dynamic rise to the top and help allay concerns about capacity and systematic risks."
He paid tribute to the Abu Dhabi Investment Authority, the world's largest SWF, over what he described as its constructive role on the issue.
Paulson said the surge in crude prices had given Gulf producers massive funds within a short period of time and enabled them to boost their investments and slash debt and fiscal deficits.
"The downside of increased oil revenues is that the Gulf is experiencing new challenges – such as inflation – that are, in some instances, being addressed with measures such as price controls and wage hikes that are likely to exacerbate the problem.
"And beyond this region record high oil prices are putting a large burden on the world economy and creating hardships for families, households and industries everywhere. This threatens to exacerbate economic volatility in the Gulf and abroad."
He said there were no simple or quick remedies and the Middle East alone could not alleviate the pressure on global oil markets.
"High oil prices are the result of supply and demand factors that are likely to persist for some time. Supplies have been affected by low capacity expansion and declining yields, while demand has surged largely due to growth in emerging markets.
"Speculation and the depreciation of the dollar are small factors behind oil price increases. The problem can be tackled by restoring the balance between supply and demand by expanding output capacities in key oil producers," he said.
He called for a halt to energy subsidies in some countries to reduce consumption and greater investment in renewable fuels and other alternative energy sources.
"On the supply side, we are urging all oil producing countries to open oil markets to foreign investment, which would support faster and more efficient growth.
"The UAE is a case in point. As an important first step, Abu Dhabi is financing massive investment in upstream production and domestic refining capacity through partnerships with foreign companies."
Paulson called for more liberalisation along these lines which he said would benefit all oil producing countries. In the case of the UAE, he added that his country was benefiting too as oil and gas field equipment and services from the US formed 45 per cent of the UAE's total imports.