Posted by David Gaffen

It’s no surprise that Citigroup found $7.5 billion in capital in the desert. Increasingly, companies looking for major capital infusions are finding willing buyers in the Middle East, particularly in the United Arab Emirates, which has quickly become the region’s largest investor abroad thanks to the vast wealth gleaned from petrodollars.

“Abu Dhabi is non-stop,” says Ashraf Laidi, chief currency analyst at CMC Markets, currently in the city, which is the capital of the UAE, for a conference. “Everybody is constantly on their cell phones, making sure a deal is going through, making sure a big order is sent.”

The wealth from petrodollars has given a number of nations vast capital to spend, and as a result, acquisitions of foreign assets have increased dramatically. For the year to date, Middle East-based equity purchases total $75.38 billion, according to Dealogic, wiping out 2006’s total, which was $30.84 billion.

Increasingly, those investments are coming to the U.S., taking advantage of the weakening dollar and the flagging stock market. The Middle East region accounts for nearly 10% of all foreign investment in the U.S. in 2007, according to Thomson Financial. Between 1998 and 2002, the share of foreign investment in U.S. companies accounted for by those in the Middle East was less than 1% in every year.

Until a few years ago, the most active foreign investor from the region was Israel, but the steady rise in oil prices has moved the UAE and Saudi Arabia in front. Cross-border activity originating from Bahrain, Kuwait and Qatar has also steadily increased (see chart, below). That’s the result of the huge increase in oil export revenue, rising from about $228 billion a year between 1998 and 2002, to an estimated $835 billion in 2007, according to Morgan Stanley. Prior to 2004, foreign investment from the Middle East as a whole tended to average around $5 billion a year — the UAE has done six times that amount this year alone.

Those investing in the U.S. tend to be sovereign wealth funds, which until recently had mostly been buying various types of Treasury securities, but have announced intentions to spend elsewhere, and have done so recently through large infusions of capital in MGM Mirage, GE Plastics, and the London Stock Exchange.

“These sovereign wealth funds are going to be a key element in supporting the increasingly uncertain, weak stock markets in the U.S.,” Mr. Laidi says.

http://blogs.wsj.com/marketbeat/2007/11/27/the-middle-east-as-spark-plug/

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