Crude oil indexation: how practical is it

Journal Article · Sun Feb 01 04:00:00 EST 1976 · World Oil; (United States)

OSTI ID:7353419

Merklein, H A

The deterioration over time of a country's terms of trade is one of the major factors contributing to that country's wealth decline. If the prices of imported goods exceed those of exported goods, the wealth declines. The practicality of applying the theory of terms-of-trade indexation is discussed in an article by Dr. Merklein in the January 1, 1976 issue of World Oil. Tables representing international trade volumes and prices of a hypothetical country, Slobovia, show that Slobovia has experienced a deterioration of its terms of trade of 39.9 percent; therefore, since the purchasing power of Slobovia's exports has declined, a price increase of its exports was necessary by that percentage. Some real data are tabulated in the present article that indicate OPEC incomes were lost through terms-of-trade for 1974 and 1975. Benefits to be gained by individual OPEC countries are discussed; indexation will not be equally beneficial to all countries. Whether individual country indices are used or not, the increase in nominal crude prices that will result from any kind of terms-of-trade indexation calls for a restriction in output by OPEC nations. Since that is in the long-run interest of OPEC members, such a restriction should be feasible. Oil production in many OPEC countries has peaked out and the instincts of self-preservation will be sharpened by declining oil exports. Member countries will bring increasing pressure on Saudi Arabia to cooperate in a voluntary program of production allocation among member countries, thereby making indexation a workable reality. (MCW)

• Research Organization: Univ. of Dallas, Irving, TX
• OSTI ID: 7353419
• Journal Information: World Oil; (United States), Journal Name: World Oil; (United States) Vol. 182:2; ISSN WOOIA
• Country of Publication: United States
• Language: English

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