IMPACT ON THE OECD COUNTRIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00176R001300140005-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 19, 2016
• Document Release Date: February 2, 2007
• Sequence Number: 5
• Publication Date: March 11, 1982
• Content Type: REPORT

Approved For Release 2007/02/02 : CIA-RDP85TOO176R001300140005-3
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 Approved For Release 2007/02/02 : CIA-RDP85TOO176R001300140005-3
11 March 1982
Impact on the OECD Countries
-- For the United States, the inflation pace would decline around 2
percentage points in 1982, below what it could be at $35 per
barrel.
-- US consumers would be paying $50 billion less for energy, thereby
boosting consumer spending by some 2 percent. At the same time,
however, the US energy sector would no longer be a major positive
factor in economic growth. On balance, real US 1932 GNP would
rise about 0.7 percentage point greater than otherwise.
-- The impact of the oil price decline on other OECD countries
depends on changes in exchange rates between 1981 and 1982. For
example, the French franc has depreciated by about as much as the
assumed decline in the oil price with the result that the French
continue to see a high oil price. However, for simplicity, I
assume that other OECD nations will perceive the same price
decline as in dollars.
The inflation reduction in Japan will be much less than in the US
(because Japan uses much less oil per unit of output than the
US). Lacking any significant domestic energy production, the
gains by the Japanese consumer would not ba partly offset by
energy industry losses, as in the US case. Thus Japanese 1982
GNP growth would be about one percent point more than it
otherwise would be.
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-- For Europe as a whole, the inflation benefit should be a little
less than for the US while the GNP increase should, as in the
case of Japan, be greater--also about one percentage point over
what it would have been.
-- However, within Europe the oil exporters, Britain and Norway will
gain less in GNP terms.
-- In sum, a price decline of this magnitude will give a sustantial
boost to the economies of the OECD countries in mid to late 1982
and 1983.
-- There would be about $100 billion improvement in the current
account positions of OECD members; the surpluses of the United
States and Japan would increase some $20 billion.
-- The deterioration in the overall OPEC current account position
between 1981 and 1982 would be around $100 billion. This implies
a reduction in OPEC deposits in Western banks and in their
purchases of Western government securities. The resulting
decline in loanable funds will create temporary financial
problems for major borrowers. While eventually the liquidity
positions of companies and the current account balances of
countries will improve as a result of lower oil prices, firms and
governments will for a few quarters have to borrow huge sums
because of faltering sales and large debt service payments. This
situation would temporarly help hold up interest rates.
Impact on Oil Exporting Countries
-- Gross oil revenues of OPEC will shrink from around $300 billion
in 1981 to around $200 billion in 1982. Most oil exporters will
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have to borrow alot and/or draw on their reserves if they want to
avoid a drastic cut in imports. OPEC countries that will
experience serious difficulties include Indonesia, Nigeria,
Algeria, Venezuela, and Libya. Non-OPEC ones that will be in
trouble include Mexico and Egypt.
-- By mid-year even Saudi Arabia may have to dip into its financial
reserves. If it reduces oil output to 6 million barrels a day,
its 1982 oil revenues will shrink by around one-half, from $115
billion to $60 billion. This level is below its planned level of
expenditures.
-- Unless the Iran-Iraq war ends, Iraq will not only see reduced
revenues from oil sales, it will receive less economic aid from
fellow Arab nations.
-- Iran will also be seriously affected unless it can increase its
oil production to, say, 2 million barrels a day. (Iran doing
this will put further downward pressure on the oil price.)