Europe and the Advanced Developing Countries

Abstract

The oil crisis of 1973–4 was a watershed for the world. Economic trends and relationships that existed before were profoundly altered by the crisis. The most obvious change was a shift of relative economic power from the advanced industrial countries which rely on imported petroleum to the OPEC countries which supply those imports. In 1973 the OPEC countries exported $3g.2bn of goods which was only 7.5 per cent of world exports. By 1977, OPEC exports were valued at $144bn which was 14.1 per cent of world trade. OPEC not only doubled its share of world trade, it did so just by raising prices since the volume of oil exports was not appreciably different in the two years. The remarkable improvement of the OPEC terms of trade supported rapid growth and made them the fastest growing group of countries in the world. Moreover since a large gap existed between OPEC exports and imports, they amassed a large amount of financial claims on the rest of the world including about $50bn of official reserves and $130bn of other assets. While the extraordinary OPEC current account surplus is being reduced rapidly, some further accumulation of financial assets will occur before the unusual surplus is eliminated in the early 1980s.

The views are those of the author and should not be attributed to other staff members, officers or trustees of the Brookings Institution. An excerpt from this paper has appeared in the Sunday Times (of London), 30 July 1978.