The Rise of Energy Finance and the Quest for Capital Supply in the US Foreign Economic Policy 1973–1976

This chapter investigates the US attempt to resort to the financial investments of the OPEC oil producing countries into the Eurocurrency markets to finance both the recasting of the supply side in the US and most advanced industrial economies, and the international payments position of the non–oil producing Least Developed Countries (LDCs) that suffered the most from both the increase in commodity prices, and the cost of money triggered by the oil crisis and by capital markets developments. Then, the chapter explores the American debate on the implications of the OPEC countries’ short-term investments on inflation, Eurocurrency markets, and the US international payments position. It charts the twin US strategy to reduce the balance of payments deficit and to restore stability in international trade through the multilateral institutional arrangements set off to recycle the funds of OPEC into long-term investments through the involvement of both the largest US commercial banks and the IMF. Finally, the chapter investigates the ways in which the leading OPEC countries (Saudi Arabia, Kuwait and Iran) reacted to this US strategy to make the oil producers shift from short-term inflation-sensitive placements to long-term investments. In so doing, the recycling mechanism is a test case to assess the course of bilateral economic and financial relations between each of these countries and the US. In contrast to the US approach––the chapter suggests––they went their own way in providing development finance assistance to the non-oil LDCs.