petrodollar recycling

While petrodollar recycling reduced the short-term recessionary impact of the 1973 oil crisis, it caused problems especially for oil-importing countries that were paying much higher prices for oil, and incurring long-term debts. The International Monetary Fund (IMF) estimated that the foreign debts of 100 oil-importing developing countries increased by 150% between 1973 and 1977, complicated further by a worldwide shift to floating exchange rates. Johan Witteveen, the Managing Director of the IMF, said in 1974: "The international monetary system is facing its most difficult period since the 1930s." The IMF administered a new lending program during 1974–1976 called the Oil Facility. Funded by oil-exporting nations and other lenders, it was available to nations suffering from acute problems with their balance of trade due to the rise in oil prices, notably including Italy and the UK as well as dozens of developing countries.

From 1974 through 1981, the total current account surplus for all members of OPEC amounted to US$450 billion, without scaling-up for the subsequent decades of inflation. Ninety percent of this surplus was accumulated by the Arab countries of the Persian Gulf and Libya, with Iran also accumulating significant oil surpluses through 1978 before suffering the hardships of revolution, war and sanctions.

Large volumes of Arab petrodollars were invested directly in US Treasury securities and in other financial markets of the major industrial economies, often directed discreetly by government entities now known as sovereign wealth funds. Many billions of petrodollars were also invested through the major commercial banks of the US and Europe. In fact, the process contributed to the growth of the Eurodollar market as a less-regulated rival to US monetary markets. As the recessionary condition of the world economy made investment in corporations less attractive, bankers and well-financed governments lent much of the money directly to the governments of developing countries, especially in Latin America such as Brazil and Argentina as well as other major developing nations like Turkey. The 1973 oil crisis had created a vast dollar shortage in these countries; however, they still needed to finance their imports of oil and machinery. In early 1977, when Turkey stopped heating its prime minister's office, opposition leader Suleyman Demirel famously described the shortage as: "Turkey is in need of 70 cents." As political journalist William Greider summarized the situation: "Banks collected the deposits of revenue-rich OPEC governments and lent the money to developing nations so they could avoid bankruptcy." In subsequent decades, many of these developing nations found their accumulated debts to be unpayably large, concluding that it was a form of neocolonialism from which debt relief was the only escape.

2005–2014 surge
Inflation and interest rates surged with oil prices in the 1970s, but not in the 2000s.
In the 2005–2014 petrodollar surge, financial decision-makers were able to benefit somewhat from the lessons and experiences of the previous cycle. Developing economies generally stayed better balanced than they did in the 1970s; the world economy was less oil-intensive; and global inflation and interest rates were much better contained. Oil exporters opted to make most of their investments directly into a diverse array of global markets, and the recycling process was less dependent on intermediary channels such as international banks and the IMF.

Thanks to the historic oil price increases of 2003–2008, OPEC revenues approximated an unprecedented US$1 trillion per year in 2008 and 2011–2014. Beyond the OPEC countries, substantial surpluses also accrued to Russia and Norway, and sovereign wealth funds worldwide amassed US$7 trillion by 2014–2015. Some oil exporters were unable to reap the full benefits, as the national economies of Iran, Iraq, Libya, Nigeria and Venezuela all suffered from multi-year political obstacles associated with what economists call the "resource curse". Most of the other large exporters accumulated enough financial reserves to cushion the shock when oil prices and petrodollar surpluses fell sharply again from an oil supply glut in 2014–2017.

Oil-exporting countries have used part of their petrodollar surpluses to fund foreign aid programs, as a prominent example of so-called "checkbook diplomacy" or "petro-Islam". The Kuwait Fund was an early leader since 1961, and certain Arab nations became some of the largest donors in the years since 1974, including through the IMF and the OPEC Fund for International Development. Oil exporters have also aided poorer nations indirectly through the personal remittances sent home by tens of millions of foreign workers in the Middle East, although their working conditions are generally harsh. Even more controversially, several oil exporters have been major financial supporters of armed groups challenging the governments of other countries.

High-priced oil allowed the USSR to support the struggling economies of the Soviet bloc during the 1974–1981 petrodollar surge, and the loss of income during the 1980s oil glut contributed to the bloc's collapse in 1989. During the 2005–2014 petrodollar surge, OPEC member Venezuela played a similar role supporting Cuba and other regional allies, before the 2014–2017 oil downturn brought Venezuela to its own economic crisis.

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