The Oil Crisis of 1973-74 and U. S. Foreign Policy : An Examination of "International Cooperation" in Petrodollar Recycling

Abstract

The first oil crisis of 1973-74 revealed that the post-war American-dominated oil order had begun to break down. This implied that the U. S. deteriorated the capacity for implementation of the foreign policy. This paper addresses the question of how the U. S. foreign policy was formed in the first oil crisis of 1973-74 and especially focuses on the logic of the official petrodollar recycling. In early 1974, the U. S. called a conference of the major oil-consuming capitalist countries, the Washington Energy Conference. This effort was to coordinate consumer buying behavior so as to dampen the effects of a practice of "leapfrogging" by oil-consuming countries attempting to outdo one another in an effort to assure adequate supplies of oil at ever increasing prices. In other words, the purpose of the conference was to balance monopoly (a unitary seller) with monopsony (a unitary buyer) through the international cooperation since the U. S. had lost the power of influencing the world oil market. But the international coorperation under the U. S. leadership was seriously being questioned when the International Monetary Fund sought to establish an "oil facility" to recycle petrodollars. In contrast to the international cooperation by which the U. S. undertook to regulate the oil consumption in order to lower the price, the IMF facility was to assist the member countries in meeting any "oil-induced deficits": the IMF had no intention of imposing any conditionalities on debtor member countries. Therefore, the political solidarity among consumer countries that the U. S. required would be disrupted by the IMF "oil facility." Coping with the contradiction, the U. S. employed linkage in oil, finance, and security issues to get consumer countries united under the international cooperation and proposed an official recycling mechanism. Moreover, the recycling mechanism that the U. S. proposed required the financial backup by petrodollars which directly came from oil producers. In other words, the U. S. would not bear the cost of the international cooperation but the participating countries would. The thesis of this study is that as the relative power of the U. S. declines, the U. S. intends to influence the economic relationships by political measures. In case of recycling petrodollars, the U. S. employed linkage to unite consumer countries to control the world oil market and to extract the economical resources from oil producers to avoid their own burden. This was how the U. S. attempted to regain the power in the oil issue.