America's Gateway to the British Isles since 1996


History Directories
British Monarchs
Sources & Texts
Church History
Europe In Retrospect

by Raymond F. Betts

Contemporary Europe

The New Economics of Oil
Petroleum products reordered European life just as they had already done so to the American. Fuel oil replaced coal as the source of industrial energy, while gasoline usage increased rapidly with individual ownership of automobiles. Economically and geographically, Europe now moved on oil.

United Kingdom2547131,605
West Germany 495041,879

Because little of the world's petroleum production takes place in Western Europe, even though off-shore oil rigs in the North Sea are now exploiting new reserves, the region has depended on imported oil for its major energy needs. In the period prior to this last decade, such importation was readily facilitated by low petroleum prices and the advent of "supertankers" capable of cheaply carrying enormous quantities of crude oil to European refineries.

This attractive economic arrangement was disrupted by a new turn in international relations. For the first time in their two-hundred-year history the industrial nations of the world could no longer easily exploit the natural resources of the so-called "underdeveloped" or nonindustrialized portions of the world.

Most of the world's oil reserves are found in the Near East, and the political turbulence of that area upset the fable oil flow. First, a change in government in Libya in 1969 brought to power a nationalist military dictatorship which initially increased the share of profits the government would receive from foreign oil concessionaires and, then, nationalized oil production. The result was an enormous increase in crude oil prices from that nation. Following Libya's initiative, the Organization of Petroleum Exporting Countries (OPEC), an international marketing con3ortium in existence since the 1950s, raised the crude oil prices at its wellheads. However, OPEC's major increase was taken in the autumn of 1973, following the Arab- Israeli war of that year. Crude oil, which had cost $1.71 per barrel at its port of origin in Arabia in 1950, rose to $2.48 in 1972; and then rose spectacularly to $11.65 in 1974.

Although the OPEC decisions may have seemed capricious to some observers, and even a form of international blackmail to others, these decisions were reflective not only of Near Eastern political concerns but also of a new spirit of national resentment expressed against the wealthy West and the ever-increasing prices of its industrial products. Since the end of World War II, industrial prices had risen sharply while the price of raw materials remained rather stable. The result was a favorable balance of trade for the industrialized West and severe financial encumbrance for the rest of the world. The OPEC decisions may thus be considered a stratagem by which to bring the "revolution of expectations" to the Near East.

The multiple effects of the increase in oil prices were quickly felt in Europe. "Petrodollars" now moved in great quantity to Saudi Arabia, Kuwait, Iran, and the other oil-producing countries. Suddenly surfeited by new wealth that they could not effectively invest in their own lands, the Arab nations replaced the money in the West. This process, ironically labeled "recyclotron," has led to Arab investment in European firms, to widespread purchase of real estate, and even to lavish vacations that but a century ago seemed only a European prerogative. Perhaps the most striking example of the new disposition of wealth occurred on July 17, 1974, when Iran purchased 25 percent of the stock of Krupp Steel for a sum of $75 million. That venerable old company, manufacturer of weapons for the two world wars, then took on new international importance.

The most obvious effect on European society of the new oil prices was serious inflation. Although inflation was noticeable at the beginning of the decade of 1970, and concomitant in growth with the increased demand for consumer goods and the equal demand for higher wages, the end of the era of cheap energy was the major factor accounting for the rapid rise in the European cost of living.

West Germany 92119135

Recently intensifying alongside inflation is the problem of unemployment. In 1966 the Common Market countries found 5 percent of their labor force without jobs. That percentage went up to 5.9 in 1977, and then on to 6.9 (some 6.2 million individuals) in early 1978. In April of 1978 the European Trade Unions Confederation called for an Action Day, an international protest of short-lived strikes throughout Europe, to indicate labor's dissatisfaction with current economic policies. Over 15 million workers joined in the brief strikes, most of which were one to four hours in duration.

The contemporary problem of "stagflation," to use the descriptive American term, is a serious one in Europe. Inflation has combined with market stagnation to produce conditions of economic distress, which are particularly disadvantageous to the young, now entering the labor market.

Moreover, governmental concern with "stagflation" has recently been matched by anxiety over political unrest.

NEXT:  Dissent and Disorder

Copyright ©2015, LLC   Questions? Comments!