In 1973 world attention was once again directed toward the subject of oil, not only in terms economic factors but also in terms of political, historical, social, strategic, engineering and other technical dimensions. It was evident that the main focus was on the Middle East as the geographic area with the largest known reserves in the world.
Since the beginning of the seventies events have all pointed the way to a structural change in the price of oil, which had been held to almost the same level for about the quarter of a century following World War II. Furthermore, with the independence of several Gulf countries and as a result of several historical and political developments, there were indications of an inevitable shift in the ownership of Middle East oil from the major Western international oil companies to the governments of the oil exporting nations. As a result of such developments, oil exporting nations, the majority of which were Third World countries, anticipated substantial increases in their oil reserves. In the meanwhile, advanced industrialized nations of the West and Japan became more dependent than ever before on the supply of oil emanating largely from members of the Organization of Petroleum Exporting Countries.
The revolutionary oil era of the seventies was unique in the history of Third World countries. To study it, therefore, that is, to help describe the new phenomenon and cast some light oil its ramifications, requires an innovative approach and a new terminology.
This paper addresses the economics of petrodollars and petrodollar surpluses, which have so far had two major peaks, in 1974 and in 1980, after which they tended to decline gradually at the beginning but sharply afterward, following the substantial drop in the price of oil since the last quarter of 1985. This paper also presents a contribution to statistical demand theory based on the demand for oil.