Introduction

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-importing countries.

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.