The first Oil Shock happened in 1973. Oil prices quadrupled, and the shock waves permanently altered the political landscape, reshaped geopolitical strategies, set in train the events which led to the collapse of the USSR, ushered in a new era of mass unemployment and of so-called 'stagflation', and hammered living standards for more than a generation. Above all, the first Oil Shock put an end forever to hopes of true development in the recently-decolonialised Third World. There are important differences between now and then. But there are also many similarities. So how did contemporary thinkers and analysts understand what was happening? Oil is the only essential commodity, and it is basic to the world energy system, which is why all energy prices tend to rise in the wake of an oil price spike. This affects international financial and economic relations in a big way. Oil is paid for in dollars; any country wishing to buy oil from Saudi Arabia must first earn enough dollars to do so (usually but not always by exporting to the USA). This fact is so fundamental: that oil is denominated in dollars: that one of the immediate effects of an oil shock is therefore to strengthen the USA. For the US is the only country which merely has to print more dollar bills in order to buy the energy it imports. After 1973, manipulating the value of the dollar became a key way that the US used to restore its strategic hegemony in the world and to overcome some of its own problems, principally a serious balance of payments deficit. As always when there is a big shake-up, there are some winners as well as many losers. How did contemporaries understand the unprecedented events unleashed by the first Oil Shock? I'll be posting more on this, including excerpts from a book first published in Paris in 1976 and later published in English in 1980: "The World Economic Crisis" by Yann Fitt et al. I have posted the key sections on petrodollars, dollar seignorage and US hegemony at the website: The Reign of the Dollar: Hegemony and Decline by Alexandre Faire (Word97 format): http://website.lineone.net/~resource_base/vigier.doc The style is a wooden and jargon-laden, but the analysis stands up. It is curious that although much has changed since the 1970s, much is still the same. Despite all talk of a New Economy, the US today is again afflicted by a balance of payment deficit which this year may rise to almost a trillion dollars: around 10% of GNP. This represents a massive, destabilising imbalance at the heart of the world economy. High oil prices are more dangerous to the US today than in 1973, since its dependence on imported energy has increased substantially. Oil at $35/bbl is still less than half the high points the oil price spiked to in the 1970s. Yet even at this level, the so-called 'weightless economies' of the West are showing their frailty. What will happen if oil rises to $70/bb this winter? Watch this space. Mark _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
