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Western Europe will experience a slight lag as well because its manufacturers will have difficulties selling goods to struggling oil-producing countries. Even so, European countries are poised for a quick takeoff. "There should be no major downside risks for Europe, since they are not significant producers of oil," observes Alan Greenspan, chairman of the Council of Economic Advisers under President Ford. Europeans, who have historically paid higher gasoline prices than have Americans, cheer the oil slide as if it were a sporting event with the home team winning. OIL REACHES PREHISTORIC PRICES, exulted Spain's financial daily Cinco Dias.
Thanks partly to low-cost fuel, Europe is expected to show real growth of about 3.5% this year, its most vibrant performance in a decade. Several governments aim to use the opportunity to make fundamental improvements in their economies. Italy's Prime Minister, Bettino Craxi, for example, hopes to reduce the country's runaway budget deficit, which is expected to hit $50 billion this year.
Japan, which imports 99.8% of the oil it uses, could save as much as $23 billion on crude this year, which will help offset the loss of export business it has suffered because of the rapid appreciation of the yen. Oil-using nations that are less well off will benefit too. In sub-Saharan Africa, lower expenses for transportation and farming could start to raise living standards after many years of decline. Some countries with state-owned oil companies, notably India and Pakistan, have so far refused to pass savings along to consumers, deciding instead to spend the money on government programs. That position has riled consumers, who see it as a hidden tax.
Though oil prices have been drifting downward since 1981, the current price war began when Saudi Arabia got fed up with its OPEC partners. For years the kingdom, which holds about one-fourth of the world's oil reserves, tried almost single-handed to prop up prices by curbing its production. The country wound up slashing its output from a peak of 10.3 million bbl. a day in 1981 to ! a low of 2 million bbl. a day last June. During that time its annual oil revenue fell from $113 billion to $28 billion. Many of the other twelve countries in OPEC, meanwhile, conducted a thriving business by secretly cheating on the group's voluntary agreements to cut production.
By last summer, Saudi royalty started to feel like the suckers of OPEC and grew impatient with Oil Minister Sheik Ahmed Zaki Yamani. "He does not know what he is doing," declared one prince. "We should cut and run from OPEC. Why should we suffer to protect them?" Finally in September, the Saudis quietly decided to throw their production into high gear and reclaim the country's lost market share. The giant petroport at Ras Tanura and the offshore loading terminal at Ju'aymah sprang to life, their 56-in. pipes spewing more than 4 million bbl. a day.
Even though the Saudis stayed inside their OPEC quota of 4.3 million bbl. a day, they could not help creating a huge surplus that angered many of their colleagues in OPEC, notably, the Libyans, Algerians and Iranians. Yamani, defending his country's action, has blamed non-OPEC producer Britain for contributing to the glut and has called on London to cut output. Britain stoutly refuses.