Increase in Imports

Since 1974 oil-exporting nations have substantially increased their imports in order to finance development plans and to pay for highly technical military training, equipment, and sophisticated defense systems such as the airborne warning and control system, AWACS. From 1972 to 1983, OPECs imports increased approximately sevenfold. Furthermore, exports to OPEC from OECD as a percentage of the latter's total exports increased from 4.1 percent in l972-73 to 8.8 percent in 1975-82, then to 8.4 percent in 1983; and it dropped to 7.1 percent in 1984. In spite of the absolute and relative increase in OPEC's imports from OECD, the latter had had a deficit in its balance of trade with the former as a result of the increase in the oil bill. However, this situation has been reversed since 1982.

The United States, for example, as a major trading nation with oil-exporting countries, had had a deficit in its balance of trade with Saudi Arabia in the period 1974-81. Since 1982 the U.S. balance of trade with Saudi Arabia showed an ever-increasing surplus; at the same time the overall U.S. balance of trade showed ever-increasing deficits.5

There are several explanations for the reversal of the OECD's trade deficit with OPEC to a surplus. First, the substantial increase in expenditures for developmental programs in OPEC had necessitated the importation of heavy equipment and technical know-how, mainly front OECD. Second, with an unprecedented increase in per capita income, demand for luxury and consumer goods imported from OECD increased substantially. Income elasticity and the concomitant demand for such imported items showed that the relative increase in the quantity of these imports was even greater than the relative change in the per capita income in Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, Oman, and Libya during the period 1974-81. Third, stimulated by the sudden upward leap in the price of oil in 1979 the OECD attempted to reduce demand for imported oil through an expansion of their internal supplies whenever possible; in addition the overall demand for oil was reduced through conservation and substitution effects. Fourth, with reduced capacity utilization of industry in the OECD as a result of the 1980 recession, demand for energy and oil was further curtailed. Fifth, OPEC members with major petrodollar surpluses had substantially increased their demand for imported weapons and military hardware in addition to unprecedented training programs carried out by Western experts either for defense purposes or for the needs of wars, such as, since September 1980, the protracted fight between Iraq and Iran.

Furthermore, oil-exporting nations, particularly the Gulf Arab countries and more specifically Saudi Arabia, had embarked on ambitious development programs since the early seventies. Having the largest dollar volume program of any other oil-exporting country, Saudi Arabia introduced to the field of economic development a unique and impressive model. Over the course of' twelve years, a modern and extensive infrastructure, including six-lane highways with overpasses and cloverleaf intersections, huge airports, several new ports, immense university buildings, housing, hospitals, communications, and public utilities, was completed, using the most sophisticated modern technology. In addition, Saudi Arabia expanded its agricultural production to tile extent that it has become a net exporter of wheat. Industrialization was also emphasized as the country built the two industrial cities of Jubail and Yanbu. The mammoth site of Jubail alone is the largest civil engineering work in history. The construction of the city in the desert necessitated moving about 370 million cubic meters of earth--enough to build a road nine meters wide and one meter deep around the equator. Jubail's industrial park of 1,100 hectares is the largest in the world. It includes 125 petroindustries and the secondary and supporting industries, in addition to a highly technical center with an ampitheater and educational facilities for training and retraining. It should be noted that major recipients of contracts in Saudi Arabia were American companies, in particular the Bechtel Corporation located in San Francisco.

Out of its sales of 35 billion barrels of crude oil during the first three development plans, in l970-85, Saudi Arabia spent approximately $550 billion on development programs. It expects to spend another $275 billion on the current, fourth development plan, 1985-90.6

The economies of industrialized nations, in particular the United States, benefited significantly from the export of capital goods and services as well its consulate goods to meet the needs of such unprecedented development programs, with their massive expenditures. The gain that accrued to the industrialized nations was not restricted to the companies directly involved in business with the oil-exporting nations; it also affected all the other, related industries and economic activities through the multiplier effect of jobs created, incomes generated, and taxes collected.

In addition to their huge development programs, oil-exporting nations also significantly increased their purchase of military hardware. From 1979, after the second oil-price leap, to 1980 Bahrain, Kuwait, Oman, and Qatar increased their military purchases tenfold while tile United Arab Emirates increased them by more than six times. And Saudi Arabia's figures rose from $3.5 billion to $8 billion in one year.7 It should be noted, however, that while actual delivery of weapons increased greatly after the 1979 oil shock, it tapered off for most of the countries in the following years as petrodollar surpluses were drying up.

The Iran-Iraq war since September 1980 drained petrodollar earnings substantially over the course of six years. Arab oil-exporting nations extended well over $30 billion to finance the Iraqi war efforts. This figure does not include the billions of dollars Baghdad spent to maintain its armed forces nor the amounts it lost in oil revenues as a result of decreased oil production. My estimate of the cost of the war from September 1980 to April 1986 is in the neighborhood of $70 billion. The futility of the war is aptly illustrated by the failure of both sides to achieve their objectives. Though bitter fighting was characteristic of this war, there seemed to be no end to hostilities. The cost of the war was a real drain on the resources of all the surrounding Gulf countries.

Back to Index