IMPACT OF HIGHER OIL PRICES ON SOUTH AMERICA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900010186-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 25
• Document Creation Date: December 19, 2016
• Document Release Date: May 23, 2006
• Sequence Number: 186
• Publication Date: February 19, 1974
• Content Type: MF

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Approved For Release 2006/0i1'26t't1Af. DP85T00875R0019Q01-144a
19 February 1974
MFJ1ORANDUrd FOR: Mr. Charles L. ?. acDonr.ld
o \SIA/rD
Room 5211
Department of the Treasury
SUBJECT impact of Fsirher Oil Prices on
South America
25X11
25X1
In response to your request of 14 February 1974,
attached is information on the innact of higher oil prices
on South America. If you have further questions, you may
contact
Attachment:
As stated
Distribution: (S-5942)
Orig. & 1 - Addressee
1 - D/OER
1 - SA/ER
1 - D/D
?5X1A 1 - St/P
1 - D/LA
1
I OER/D/LA
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 ? Approved For Release 2006/0~129 C]At-RDP85T00875R001900010186-2
Prices on South America
1. The impact of higher oil costs on South American
countries in 1974 will vary. Growth and price stability will
be impeded in some countries. Export earnings will,,rise
sharply for others. Brazil, Chile, Paraguay, and Uruguay --
countries largely dependent on foreign oil supplies -- will
suffer most. Argentina, Colombia, and Peru, which produce
most of their own requirements, will be only moderately
affected. Bolivia, Ecuador, and Venezuela, net exporters
of oil, will gain substantially from higher foreign exchange
earnings and increased royalty and tax payments by oil
companies.
2. Except for the petroleum exporting countries,
growth rates in 1974 are likely to fall. Even countries
which are relatively self-sufficient will suffer some adverse
impact of higher oil prices. Many imports, particularly
petroleum-based products, will be more expensive. International
demand for raw material and manufactured exports will fall
$f the sharp rise in oil prices slows growth in developed
countries. Inflationary pressures will probably intensify
and government measures to counter them will moderate
economic growth policies.
3. If higher prices prevent maintenance or expansion
of oil imports, economic growth will be further reduced.
Petroleum consumption has risen steadily in the region, at
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 ? Approved For Release 2006/0%1;9.',' _!g} MIDP85T00875R001900010186-2
rates ranging from 8% for Colombia to 12% for Brazil. Because
much of the region's electric power ann transport media are
fueled by oil, growth in industrial output is likely to slow
and transportation may be disrupted. Few readily available
substitute energy sources exist. % Countries Largely Dependent :on Foreign Sources
4. The oil import.bill for Brazil, Chile, Paraguay,
and Uruguay coulca reach $2.7 billion during 1974,'equal to
about 30% of their export receipts. Brazil would account for
an estimated $2.2 billion and Chile nearly all the remainder.
Imports to Paraguay and Uruguay are small. Brazil's projected
oil imports will cost about 30% of projected export earnings
and Chile's about 23?. Uruguay's imports will equal about
45% of export earnings. Because Paraguay's requirements
are small, oil imports may be less than 10% of projected
export earnings. Brazil's strong reserve position and export
capability will enable it to absorb the higher oil import
costs. In contrast, higher oil prices will have a particularly
detrimental effect on the economies of Chile and Uruguay
because they must import other critical food and raw materials
as well and their export industries will not be able to
expand revenues sufficiently to match rising import costs.
Balance of P