Have you ever wondered where all the money that you pay for gas goes? This article from The Economist will give you some ideas.

Follow the money

One puzzle is that, according to data published by America's Treasury Department, OPEC members' holdings of American government securities fell from $67 billion in January this year to $54 billion in August. But Middle East purchases of American securities are probably being channelled through London. Mr Khan reckons that although the bulk of OPEC's surplus revenues has so far gone into dollar-denominated assets, those assets are increasingly held outside the United States. A big chunk is also going into hedge funds and offshore financial institutions, which are unregulated and so impossible to track.

There has also been a flood of petrodollars into private equity abroad. In January, Dubai International Capital took a $1 billion stake in DaimlerChrysler. In March, it bought the Tussauds Group, a theme-park firm. This month, DP World, Dubai's state-owned ports operator, made a £3 billion ($5.2 billion) bid for P&O, Britain's biggest ports and ferries group.

Many smaller private investors in the Middle East are keeping their money closer to home. In the 1970s and early 1980s equity markets barely existed in the Gulf. This time money has flooded into them. Share prices in Saudi Arabia have increased fourfold since 2003, and its bourse now has the largest capitalisation of any emerging stockmarket. The average price/earnings ratio in the region is over 40 and recent share offerings have been oversubscribed several hundred times. A spectacular property boom is under way in many places, notably Dubai, which has become a regional financial centre and leisure playground. The world's biggest shopping mall is being built there and Emirates, the state's airline, has virtually underwritten the launch of the Airbus A380, ordering no fewer than 45 of the super-jumbos, a third of the total (see article).

Despite the lack of hard data, many economists are sure that a big dollop of petrodollars is going into American Treasury securities. If so, the recycling of money via bond markets could have very different effects on the world economy from the bank-mediated recycling of previous oil booms. If petrodollars not spent flow into global bond markets, they reduce bond yields and thus support consumer spending in oil-importing countries.

Of course, some of those petrodollars are staying "at home", in the oil-producing countries. Someone sent me this presentation showing how some creative souls in the UAE have used their dollars (click on the slide to advance to the next frame):

So it's great to know that some of those dollars are being used for housing and quality transportation in less developed countries.

Now, if the US wanted to keep those petrodollars at home it could spend research dollars on biodiesel or butanol. But it's more fun to break things.

Green fuel replaces gas – gallon for gallon
November 11, 2005

I’ve seen the future replacement for gasoline, its name is butanol.

In August, I was attending a conference of the International Association of Educators for World Peace at the University of San Francisco, when a 1992 Buick rolled up on campus. The sign on its door read, “Powered by: 100% BUTANOL