Arab Oil Money

Report Outline
World Impact of Oil Price Increases
Consequences in International Affairs
Steps to Alleviate Fuel Price Squeeze
Special Focus

World Impact of Oil Price Increases

Disruptions Arising From Flow of Oil Revenues

Americans are paying more than ever before to drive their cars and heat and light their homes. Crude oil price increases decreed by the petroleum-exporting countries are a hardship to many and a nuisance to nearly all U.S. consumers. The impact of the price rise on the world economy, however, is far more serious. It has already had a spectacular effect on the international monetary system, transferring vast sums to the oil producers, disrupting the economies of industrial countries, and threatening bankruptcy in some of the poorer ones.

Oil prices have more than quadrupled over the past year. In January 1973 the posted price for Persian Gulf crude—the standard reference in the oil trade—was $2.59 a barrel; a year later it had shot up to $11.65. A handful of nations and sheikdoms stand to reap immense gains from the oil bonanza. Saudi Arabia, the world's largest oil exporter, may earn as much as $19.4 billion this year, in contrast to $1.2 billion in 1970. For the United Arab Emirates, a grouping of seven tiny Persian Gulf states, the statistics are mind boggling. They probably will achieve a gross national product amounting to $20,500 in 1974 for every man, woman and child—more than three times higher than America's per capita GNP. Abu Dhabi, one of the seven Emirates, may record a GNP of $45,000 per inhabitant.

Barring a sudden—and unlikely—turnabout in the world's energy situation, the massive flow of capital to the oil-producing countries is likely to intensify in the future. And it presents enormous problems to virtually every country, including the oil producers. With few exceptions, they do not have the capacity to absorb the influx of currency reserves in their own economies; a way must be found to invest the excess safely. The industrial oil-importing countries are incurring huge balance-of-payments deficits and poor countries are facing economic ruin. Soaring costs of fuel, fertilizer and food dim their hopes for development.