MIDDLE EAST OIL EARNINGS AND INVESTMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R002000010030-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 12
• Document Creation Date: December 12, 2016
• Document Release Date: May 15, 2000
• Sequence Number: 30
• Publication Date: December 4, 1974
• Content Type: MFR

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SUBJECT: Middle East Oil Earnings and Investment
Acting Chief
Trade and Monetary Analysis Branch
Office of Economic Research
Distribution: (5-6654)
1 - D/OER, SA/ER
1-D/I
1 - St/P
- I/TM 25X1A
0ER/I/TM//ml/7717 (4 December 1974)
The attached paper, "Middle East Oil Earnings and
Investment," was prepared for the use of the D/OER and
NIO/EC in their briefing of the President's Foreign
Intelligence Advisory Board. At their request, the
paper is also being provided to members of the inter-Agency
committee studying OPEC investment: Donald Curtis and
Charles Schotta of Treasury, Sam Pizer of the Federal
Reserve Board, Frank Vargo of the Commerce Department, and
Carl Cundiff of the Department of State
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MIDDLE EAST OIL EARNINGS AND INVESTMENT
I. Middle East Oil Earnings
A. Oil receipts of the eight major Middle East producers
will total $74 billion in 1974, almost 80% of total
OPEC revenue (see Table 1).
ESTIMATED MIDDLE EAST OIL RECEIPTS, 1974
(Billion US$)
1st
Half
2nd
Half
1974
Total
ALGERIA
1.7
2.1
3.8
IRAN
7.0
11.2
18.2
IRAQ
2.2
y,
2.9
5.1
KUWAIT
1.2
6.2
7.4
LIBYA
3.5
3.2
'6.7
QATAR
.6
.9
1.5
SAUDI ARABIA
7.4
17.2
24.6
UNITED ARAB EMIRATES
1.8
ate 1
6.S
TOTAL
25.4
48.4
73.8
B. Oil revenues would have been even greater were it not for
the lag between the time oil is produced and the time
it is paid for.
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1. Normal payments are lagged on the average two
to three months.
2. Special deferrals were allowed by some producers
duirng the first half of the year while negotia-
tions on new participation arrangements were in
progress.
C. If payments were made concurrently with:.production,
revenues would total about $87 billion this year (see
Table 2).
ESTIMATED MIDDLE EAST ACCRUED OIL EARNINGS, 1974
ALGERIA
4.1
IRAN
20.3
IRAQ
5.8
KUWAIT
8.6
LIBYA
6.7
QATAR
1.9
SAUDI ARABIA
29.9
UNITED ARAB EMIRATES
9.6
TOTAL
86.9
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WI rU ElGI1 Maui
(Billion US$)
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D. The lag in payments shifted the impact of higher
oil prices to the second half of the year.
1. Monthly receipts in the first quarter of 1974
averaged $2.9 billion.
2. Monthly receipts in the second quarter averaged
$5.6 billion.
3. Monthly receipts in the second half of the year
II.
are averaging $8.0 billion.
E. Oil revenues will be concentrated in relatively few
countries -- Saudi Arabia and Iran will receive $43
billion, or nearly,60% of total Middle East oil earnings.
F. If oil prices continue at present levels, the monthly
receipts of Middle East oil producers will average
about $6.8 billion in 1975.
1. Even if recent price increases announced by some
Persian Gulf producers are widely adopted, Middle
East producers receipts will drop by about $1.5
billion a month from present levels.
Middle East Imports
A. Middle East oil producers will be hard pressed to spend
more than a small fraction of their growing wealth.
B. Total ! mpo*: t expenditures (f.o.b.). are only expected
to reach $22 billion, or less than 30% of projected
oil earnings in 1974 (see Table 3).
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TABT E 3
ESTIMATED MIDDLE EAST IMPORTS (f.o.b.), 1974
(Billion US$)
ALGERIA
3.5
IRAN
6.9
IRAQ
2.3
KUWAIT
1.4
LIBYA
2.6
QATAR
.2
SAUDI ARABIA
3.3
UNITED ARAB EMIRATES.
1.3
TOTAL
21.5
C. Preliminary estimates indicate that imports will
probably exceed $30 billion in 1975, still less than
40% of projected oil earnings.
D. Low absorbers include Saudi Arabia, Qatar, and the
United Arab Emirates (see Table 4).
1. With small populations and limited domestic
investment opportunities, the earnings of these
nations exceeded their ability to absorb foreign
goods and services even before the oil price
increases.
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TABLE 4
ABSORPTIVE CAPACITY OF MIDDLE EAST PRODUCERS, 1974:
IMPORTS AS A PERCENT OF OIL REVENUES
(Percent)
E. High absorbers include Algeria, Iran, Iraq, and Libya.
1. For the most part, these countries have large
populations and gr3ater opportunities for internal
development. Nevertheless, in the short run,
revenue increases are outstripping absorptive
ability even in these countrieE.
ALGERIA
IRAN
IRAQ
KUWAIT
LIBYA
QATAR
SAUDI ARABIA
UNITED ARAB EMIRATES
,/ 29
140 FOREIGI' DISSE111
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III. Middle East--Investable Surplus
A. Preliminary estimates indicate the Middle East oil
producers will accumulate an investable surplus of
about $52 billion this year (see Table 5).
TABLE 5
ESTIMATED MIDDLE EAST INVESTABLE SURPLUS, 1974
Export Receipts
75.3
Oil
73.8
Non-Oil
1.5
Import Payments (f.o.b.)
21.5
Net Services
-1.6
Investable Surplus
52.2
B. Foreign aid will reduce the investable surplus in
1974 by not more than $4 billion.
1. The Middle East oil producers' current account
surplus will consequently be in excess of $48
billion.
IV. Middle East Investment Patterns /
A. Producers have continued to place the bulk of their
investable surplus in financial markets in a few
developed countries.
lal~ IO'I OISSEM
COINHO NTIAL
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(Billion US$)
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B. The basic investment objectives of the Middle East
oil producers include:
?Insuring their holding against political seizure.
"Maintaining -- and, if possible, increasing --- the
real value of their assets.
.*Retaining effective control of their investments.
C. Most holdings are dollar denominated (see Table 6).
1. Eurodollar investments -- dollar assets outside
the United States -- make up about 40% of the total.
2. Dollar holdings in the United States account for
an additional 15%.
`FABLE 6
CURRENCY DENOMINATION OF OFFICIAL FOREIGN ASSETS
OF MIDDLE EAST OIL PRODUCERS, 30 SEPTEMBER 1974
EURODOLLARS 40
US DOLLARS 15
STERLING 15
OTHER CURRENCIES 25
GOLD AND RESERVE POSITION IN THE IMF 5
TOTAL FOREIGN ASSETS ' 38 Billion US$
NO FRF.]S-11 DISSE"06 3
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 GOLD AND RESERVE POSITION IN THE IMF
OTHER FOREIGN RESERVES
BANK DEPOSITS
TREASURY STOCKS AND BONDS
SELECTED NOTES AND LOANS
5
85
60
10
15
OTHER FOREIGN ASSETS; INCLUDING EQUITIES 10
AND REAL ESTATE
TOTAL FOREIGN ASSETS
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30 Sept 1974
38 Billion US$
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D. Most Middle East holdings are in liquid assets,
particularly bank deposits (see Table 7).
1. These deposits are safe, easily managed, and
can be readily channeled through intermediaries
.tn provide the anonymity that makcs seizure
unlikely.
COMPOSITION OF OFFICIAL FOREIGN ASSETS
OF MIDDLE EAST OIL PRODUCERS
(Percent)
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V 111-114f'
E. The concentration of Arab investments is straining
t)e Eurodollar market. Eurodollar banks, reluctant
to accept oil -noney on terms that producers desire,
now offer somewhat lower-than-market rates on these
deposits.
1. At present, the US financial market is the only
other market in which producers can realize
their investment goals.
2. The US financial market, because of its size
and depth, will probably continue to receive a
growing share of producer deposits.
P. .he share of Middle East investments placed in the
United States has increased through 1974.
1. 16% of observed Middle East investment was
? In
placed in the United States during the first
quarter of 1974.
2. 17% and 27% of observed investments were placed
in the Unite' States during the second and'
third quarters, respectively.
G. As import expenditure rise, problems arising from
the oil producers' accumulation of wealth will gradually
shift.
1. The producers' investable surplus will decline
both absolutely end relative to world trade and
production.
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 2. Foreign holdings will become increasingly
? concentrated in Saudi Arabia, Kuwait, and
the Arab Persian Gulf states.
3. Longer-term assets will increase in importance
as the relative size of bank deposits decline.
4. An increasing share of producer wealth will be
placed in US financial markets.
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CIA/OER
4 December 1974
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