To focus on the study of the emerging petroleum revenues in light
of the sharp increase in its price as of the beginning of 1974,
I wish to introduce a new term Petrodollars. It may be
defined as the Unites States dollars earned from the sale of oil.
For certain historical reasons, price of oil has been and still
is denominated in United States dollars.
It may be observed that 1974 will stand in recent history as the
year of energy crisis in industrialized countries, the year of
conflict between oil-exporting and oil-importing countries, the
year of unprecedented reallocation of resources intra and inter
nations and the year of unconventional disequilibria in balance
of payments in most of the countries of the world.
Such developments may continue until the end of this decade unless
there is a careful analysis of the underlying issues of the energy
crisis with the purpose of constructing a framework for cooperation
and pursuing a policy of accommodation between oil-exporting and
Oil, as the main source of energy, is a depletable natural resource
for which demand is inelastic. This means that if production is
curtailed, both prices of oil and Petrodollars will increase.
As the main oil exporters and with the largest known recoverable
reserves in the world, Arab-oil exporting countries reduced their
oil production by twenty five percent, stage by stage, to attain
justifiable political and economic demands as the result of the
Mideast October war of 1973. One of the most significant outcomes
of the October events was the substantial increase in oil prices.
The price of a barrel of Saudi Arabian 341
crude oil, F.O.B. Ras Tanura, rose from $2.59 on January 1, 1993
to $5.12 on October 16, 1973 to $11.65 on January 1, 1974. Hence
Petrodollars surpluses will accumulate until they are to be spent
on consumption, development and investments.