Re: OPEC , Bretton Woods and the dollar

[Abbas Alnasrawi <aalnasra@xxxxxxxxxxxxx>]

It is useful to note that the the increase in crude oil prices in the
decade of the 1970s was achieved in three stages. These very briefly are:

	1. In February 1971 OPEC and the multinational oil cos. concluded
a five year agreement (the Tehran agreement) to raise prices gradually.
Given the contractual arrangments at the time OPEC countries were destined to receive 50% of
the increment in price. The five year accord was drafted to yield a
modest increase in govt. oil revenue.
	The August 15, 1971 decision of the Nixon admin to abandon
the $35/gold oz linkage led to the depreciation of the dollar. This
in turn wiped out a major portion of developing country foreign
reserves ($ reserves). In the case of OPEC the new dollar value diluted
the February price increase in addition to the reduction in the value of
their $ reserves relatie to other currencies. Hence another round of
negotiations with the companies which yielded some upward adjustment in
oil prices.

	2. It was in October 1973 and in the context of the Arab-Israeli
war as well as the unprecedented rise in the demand for oil and company
profits that prices were raised by OPEC unilateraly (for the first time
in OPEC's history) following the failure of OPEC-company negotiations.

	3. As of January 1, 1974 the oil prices were raised again at the
insistence of the Shah of Iran. By this time the price of Arabian light
crude was about 4 times its October 1 , 1973 level.

	This quadrupling of cude oil prices gave birth to such terms as
"oil price revolution", "petrodollar", "recycling" and "OPEC cartel"
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Abbas Alnasrawi
Dept. of Economics, University of Vermont, Burlington, VT 05405