13 March 1987 - 15 March 1987

The International Economic and Political Implications of Fluctuating Oil Prices

Chair: Sir Albert Thomas Lamb KBE CMG DFC

After an interval of just over a year the Foundation returned, on the weekend 13-15 March, to questions of oil politics. This time attention was directed to the economic and political effects of unstable oil prices in different parts of the world - "The international economic and political implications of fluctuating oil prices". Lord Roll was to have taken the chair, but unfortunately he was prevented by illness and Sir Archie Lamb very helpfully stepped into the breach at short notice. There were several unwelcome cancellations at a late stage, but there were also some late "windfall" acceptances. In the end the conference was well attended from the US and UK, and there were three participants from Japan and others from France, Germany, Mexico, Saudi Arabia, Australia, the Commission of the European Communities, the International Energy Agency at the OECD, the World Bank and the Inter-American Development Bank.

The subject was a difficult one because it required good knowledge of the oil market and oil price movements, but instead of looking inwards at policy-making in relation to oil, the conference was required to look outwards at the impact which unstable movements in the oil market had on efforts in different parts of the world to achieve economic and political stability. Expertise was required on the problems of producer states in the Middle East, America north and south, Asia, Africa and Europe, on the problems of consumer states in the first, second and third worlds and on global economic trends in general. There were people round the table who could contribute on all these subjects, but they started off by not having a great deal in common. The subject took shape as the conference proceeded. Sometimes it resembled a study session rather than a debate, and this made it fairly low-key at times. In the end the conference was reasonably successful in putting oil problems into perspective and identifying and classifying the damage done by fall-out from the oil market.

Saudi Arabia's key role as the swing producer was much discussed and it was agreed that, Saudi production having been reduced to levels where it could no longer perform this role successfully, the rest of the OPEC had had to accept more responsibility for production restraints. It remained to be seen whether OPEC would manage to stabilise prices around $18 a barrel. Much below this, demand for oil would probably pick up while marginal production would be cut back by non-OPEC producers, bringing the danger of a replay in the 90's of the crises of the 70's. Much above it, consumers would concentrate on fuel economy, diversification, etc., undermining OPEC's predominance.

If Saudi Arabia was the key producer, the United States had become the key consumer. A great deal would depend on US policy in relation to its own oil production, which required prices in the $20 range if it was to be kept going satisfactorily, and on the continuing ability of Middle Eastern suppliers to provide the United States' import needs. There were some at the conference who regarded supply and demand for oil and therefore oil prices as irredeemably cyclical and future crises as inevitable, but many others seemed to attribute greater value to the factors which would keep prices from either soaring or slumping. Both OPEC and non-OPEC producers had learned some wisdom from past crises, and consumers had learned about energy conservation, diversification, etc. Natural gas reserves, the "sleeping giant", stood somewhere in the background and technology would eventually unbind them: the oil producers had no interest in accelerating this process.

The importance of Middle East oil reserves led to much discussion of the Iran-Iraq war, with some of the Americans inclined to pursue a "stop Iran" line and the Europeans disinclined to regard that as practicable and adhering to the view that, while the outcome of the war might bring big political changes, this need not stop Middle Eastern and Gulf oil from flowing.

In general, therefore, the mood of the meeting was not pessimistic. The world economy had stood up well to the oil crises, and the international banking system had coped adequately with the changed capital flows which had resulted from them. The economies of the major industrialised consumers of oil had absorbed the oil shocks without too much trouble; and, indeed, the oil shocks had been subsumed into economic crises of a wider nature through which it had also proved possible to navigate without disaster. The fall in oil prices had had very bad effects on producer countries outside the Middle East and particularly in Latin America and Africa; but the debt crisis was the main affliction of these countries, and while oil prices contributed to the debt crisis they constituted only a part of the problem. Third world consumers had suffered much from earlier oil price increases and had benefited only marginally from the oil price fall: their troubles arose from the movement of commodity prices in general, not to speak of various forms of political mismanagement, instability, etc. There were cases where sharp oil price movements might be the last straw which broke a camel's back, but oil prices were usually only a contributory factor among other, graver causes of economic and political upheaval. Producers and consumers in Asia received a relatively good mark for their reactions to the vagaries of the oil market.

Discussion of the impact of oil price fluctuations on the Soviet Union and Comecon countries led to the conclusion that, while the Soviet Union had some difficult and complex problems in striking a balance between its own production and supply, its important hard-currency earnings from oil sales and the needs for oil of the Eastern European states, and while oil-dependence on the Soviet Union was one of the ties binding eastern Europe to Moscow which in theory could do with being reduced, the communist states were fairly well insulated against the effects of sharp fluctuations in world oil prices.

Among developed countries, Japan and Germany were judged to have benefited little from the fall in prices for crude, largely because of the appreciation of their currencies and their reluctance to stimulate their economies. France, Italy and Spain had enjoyed oil-induced boosts, partly through allowing oil-price reductions to be passed on to their citizen-consumers. Norway, being more heavily dependent on oil production than the UK, had been severely affected, but the nett effect on the UK was probably neutral.

In the end it was the third world debtors who excited the conference's compassion, but as their ills were only partly due to oil price shifts, the remedying of them fell outside the scopes of this conference. This did not prevent some eloquent pleas on their behalf - a digression which was sympathetically received. There will be a conference relevant to that issue next year.

This Note reflects the Director’s personal impressions of the conference.  No participant is in any way committed to its content or expression.

Conference Chairman: Sir Albert Thomas Lamb KBE CMG DFC
Director of British Shipbuilders, Britoil pic; Senior Associate, Conant and Associates Ltd, Washington, DC; Adviser, Samuel Montagu & Co Ltd; Member, Economic Development Committee on Civil Engineering, National Economic Development Office; President, Energy Industries Club.


Professor JAC Mackie

Head, Department of Political and Social Change, Research School of Pacific Studies, the Australian National University, Canberra; Member, Editorial Committee, Bulletin of Indonesian Economic Studies.

Mr Rodric Braithwaite CMG

Deputy Under-Secretary of State, Foreign and Commonwealth Office
The Hon David Douglas-Home
Director, Morgan Grenfell & Co Ltd; Chairman, Committee for Middle East Trade, British Overseas Trade Board; a Governor and member of the Council of Management of the Ditchley Foundation.
Mr John Guinness CB
Deputy Secretary, Department of Energy; Governor, Oxford Energy Institute.
Dr John Healey
Chief Economist, Overseas Development Administration
Dr Stuart Holland MP
(Labour), Vauxhall; Opposition Front Bench Spokesman on Overseas Development and Cooperation; Associate, Institute of Development Studies; Member, sub-committees (including Finance and Economic Policy, Industrial Policy, EEC, Economic Planning, Defence, Development Cooperation, Public Sector), National Executive Committee, Labour Party.
Miss Lucy Kellaway
Energy Correspondent, Financial Times.
Mr Wilfrid Knapp
Senior Fellow, St Catherine’s College, Oxford.
Mr Richard Lloyd
Chairman, Hill Samuel & Co Ltd; a Governor, Member of the Council of Management and Chairman of the Finance and General Purposes Committee, the Ditchley Foundation.
Mr Robert Mabro
Director, Oxford Institute for Energy Studies; Principal Investigator, Economic and Social Research Council project on the World Petroleum Market; Fellow, St Antony’s College, Oxford, and Senior Research Officer, Economics of the Middle East, University of Oxford.
Mr Michael Maltby
St Antony’s College, Oxford.
Mr Edward Mortimer
Assistant Foreign Editor, Financial Times; Fellow, All Souls College, Oxford; a member, Programmes Committee, the Ditchley Foundation.
Dr George Philip
Reader in Latin American Politics, Department of Government, London School of Economics, and Institute of Latin American Studies, University of London.
Mr Christopher Roberts CB
Deputy Secretary, Department of Trade and Industry, and Chief Executive, British Overseas Trade Board
Mr James Ross
Managing Director and Chief Executive, BP Oil International.
Mr Madron Seligman MEP
Member of the European Parliament (Conservative), Sussex West; Director St Regis International.
Mr Jonathan Stern
Director, Joint Energy Programme, Royal Institute of International Affairs.
Mr Paul Tempest
Head of International Energy Division, Group Public Affairs, Shell International Petroleum Co pic
Dr David Wilson
Lecturer, Department of Geography, University of Leeds.

Mr J
ørgen Mortensen
Acting Director, Economic Department, Directorate General II (Economic and Financial Affairs), Commission of the European Communities.

Professor Dr Norbert Walter

Senior Fellow, American Institute for Contemporary German Studies, The Johns Hopkins University, Washington, DC on leave from Institut für Weltwirtschaft (The Kiel Institute of World Economics).

Monsieur Gilles Bellec

Directeur des Hydro-Carbures, Ministère de l’Industrie, Paris

Dr Hector Luisi

Representative in the United Kingdom, Inter-American Development Bank.

HE Dr Kunio Katakura

Ambassador of Japan to United Arab Emirates
Dr Machiko Nissanke
Research Fellow, Oxford Institute for Energy Studies; Fellow, Nuffield College, Oxford.
Mr Kazushi Uemura
Senior Lecturer in Energy Economics, Sophia University, Tokyo; Visiting Researcher, Institute of Energy Economics of Japan, Tokyo (1982-84).

Dr Jorge Casta
Senior Associate, Mexico, Carnegie Endowment for International Peace, Washington, DC; Political Correspondent, Proceso, Le Monde Diplomatique, and Radio Canada
The Hon Mario Moya Palencia
Ambassador of Mexico to the United Nations, New York

Mr Marcel Kramer

Head of Oil Industry Division, International Energy Agency (IEA), OECD, Paris.

HE Sheikh Abdulaziz Al-Quraishi
, Managing Director, Ali Zaid Al-Quraishi & Bros, Riyadh; Chairman, National Saudi Shipping Company, Riyadh; Chairman, Saudi International Bank, London; Member International Advisory Board, Security Pacific National Bank of Los Angeles

Mr Robert J Berg

Senior Fellow, Overseas Development Council, Washington, DC; Co-Director, Committee on African Development Strategies; Vice President, Society for International Development, Rome.

Mr Michael Caiingaert
Minister for Economic Affairs, United States Embassy, London
Mr Timothy Deal
Minister-Counselor, United States Mission to the OECD, Paris|
Dr Paul Jabber
Senior Fellow, Middle East Program, Council on Foreign Relations, New York
Mr Edward L Morse
Managing Director, The Petroleum Finance Company Ltd, Washington, DC.
The Hon David Newton
United States Ambassador to Iraq
The Hon Richard B Parker
Director of Publications, Middle East Institute, and Editor, Middle East Journal, Washington, DC;
Mr Lucian Pugliaresi
Director, International Economic Affairs, National Security Council, Washington, DC.
Dr Barry Rubin
Author; Fellow, Foreign Policy Institute, Johns Hopkins University
Ms Elena Turner
Research Associate, Conant and Associates (International firm specializing in analysis of political and economic factors involved in access to primary energy sources), and Managing Editor, Geopolitics of Energy, Teaching Fellow, Catholic University.

Dr Willi A Wapenhans

Vice President, Europe, Middle East and North Africa, World Bank, Washington, DC.