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.