The quadrupling of oil import prices in one year, quite apart from Arab supply cutbacks, has greatly increased the urgency and gravity of the questions that were lurking in the shadows even in the earlier, balmier days of the energy crisis.1 No less an authority than the managing director of the International Monetary Fund (IMF) has warned that the combination of oil shortages and price increases in 1974 is likely to produce "a staggering disequilibrium in the global balance of payments . . . that will place strains on the monetary system far in excess of any that have been experienced since the war." And Treasury Secretary Shultz has stated that the recent oil price increases raised "literally unmanageable" problems for many nations.
These, then, are the questions that confront us:
- Can the international monetary system sustain a transfer of wealth of such unprecedented dimensions without extensive disruption or even collapse because of intolerable balance-of-payments strains?
- Will the consuming countries be able and willing to absorb the immense investments the oil-producing countries may wish to make?
- Will new financial mechanisms be necessary to assure reasonable stability?
- What will happen to currency values?
- Will the consuming countries be able to make the necessary internal adjustments without severe dislocation and with no lasting impairment of growth?
- Will the increase in oil prices further accelerate the inflationary spiral?
- How severe will be the impact of higher prices on living standards?
- How will the resource-poor Third World be able to cope with the oil crisis, and what will be the political consequences for the industrial countries?
The starting point for an analysis of the monetary impact of the energy crisis is the quantum jump in import bills implied by higher oil prices. For the United States, Europe and Japan, oil imports this year may be nearly $50 billion more than in 1973. What will happen beyond this year is highly conjectural, depending on the responses of supply and demand to sharply higher prices in the consuming countries, and on the
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