OPEC and the Industrial Countries: The Next Ten Years

From 1947 to 1973 the shift of power is exponential. In 1947 the United States ceased to be a net exporter of oil; the basing point for oil prices moved from the Gulf of Mexico to the Persian Gulf, and with it the underlying leverage. Although the Organization of Petroleum Exporting Countries (OPEC) was formed in 1960, its membership was so disparate that at first it did little to exploit the shift. With prices low, U.S. dependence on imported energy grew to 14 percent of energy consumption in 1972. Europe's dependence on energy imports grew from 33 percent in 1960 to 65 percent in 1972; Japan's from 43 to 90 percent in the same period. By the late 1960s OPEC members were acting more masterfully to turn the increased dependence to advantage; prices began to move up. The 1973 October War revealed OPEC's full power.

It is important to be precise about the implications of this shift for the industrial countries. First, the cartel action continues to pose a short-term problem of economic management. The sharp jump in oil prices accounted for about a quarter of the average 14 percent inflation experienced in 1974 among the member-countries in the Organization for Economic Cooperation and Development (OECD). Industrial dislocation and unemployment caused by the 1973-74 embargo, and conservative demand-management policies in Europe and Japan designed to overcome oil-caused balance-of-payments deficits helped trigger the present recession. No doubt the effects of the continued high price of oil on internal demand will make it more difficult to design policies to return the industrial economies to a high rate of growth. All of these difficulties are important and costly, but they are-or can be made-transitional.1

Second, there is a medium-term problem of financial management. Most recent studies suggest that the accumulation of financial assets by OPEC will peak in the late 1970s or early 1980s at levels perhaps in the range of $200 to $250 billion in 1974 dollars. This is an enormous total by present comparison-official holdings of financial assets by all the OECD countries totaled $118 billion at the end of 1974-but it is less than was estimated a year ago. Although the political and financial implications of the expected accumulations cannot yet fully be judged, recycling of oil dollars has proceeded more smoothly than feared, and this problem appears manageable.2