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The Great Inflation — 1971 to 1982 · 6 of 11

Petrodollar Recycling

Explain where the money paid for oil went after 1973, how it reached the countries that had to borrow, and what the developing countries asked for and got.

Before you start

What you'll be able to answer

  1. Where did the money the oil importers paid go after 1973?
  2. How did it reach the countries that had to borrow?
  3. What did the developing countries ask for, and what did they get?

Where this sits

The Great Inflation — 1971 to 1982 · this module is lit

  1. 15 Aug 1971The United States stops turning dollars into gold, freezes wages and prices, and puts a tax on imports
  2. Dec 1971–Mar 1973New fixed rates are agreed in December 1971, with the dollar devalued against gold; they break down, and by March 1973 the main currencies float
  3. 1972Food and commodity prices start to climb, while consumer prices across the rich world are already rising
  4. Oct 1973Arab oil producers embargo shipments to the United States and the Netherlands
  5. 1974Imported crude costs US refiners far more than in 1973; in America inflation and unemployment rise together
  6. Jan 1976At a meeting in Jamaica, IMF members agree that each country may choose its exchange-rate arrangement; gold is to lose its official price
  7. 1979Iran's revolution cuts its oil production, and the oil price rises a second time
  8. Oct 1979The Federal Reserve raises its discount rate, and most of the other countries the series follows raise an official rate within two months
  9. 1982Bank lending to developing countries halves, and a debt crisis begins
  10. 1983Inflation is below its peak in all eleven countries the series follows

Oil exporters now set the price, and importers paid far more

From the mid-1960s the governments of the oil-exporting countries took more control over how much crude was pumped and what it cost. In the 1970s their organisation, OPEC, began to work as a cartel, a group of sellers that agree on output and prices, according to the US President's Council of Economic Advisers in 1974. OPEC members raised the price of crude sharply in October 1973 and again in late December 1973. Every oil importer now paid a far bigger bill. What would the exporters do with the money?

Predict first

In 1973 Saudi Arabia, a large oil exporter, earned a little more from the rest of the world than it spent there. What do you think happened to that surplus in 1974?

The exporters' surplus jumped in a single year

A country's current account adds up what it earns from the rest of the world, mostly by selling goods and services, and takes away what it spends there. Saudi Arabia's went from a surplus of $2.5 billion in 1973 to $23.0 billion in 1974, on figures from the International Monetary Fund (IMF), which lends to member countries that run short of foreign currency. The oil exporters as a group went from $6.6 billion to $67.8 billion, in the IMF's 1981 count. When one group earns far more abroad than it spends, the rest of the world together must spend more than it earns. The price rises, the Council wrote in 1975, created massive current-account deficits in the oil-importing countries.

Saudi Arabia's current account, 1972 to 1980Billions of US dollars a year; above zero is a surplus
-100102030405019721974197619781980First full year of dearer oilOil price rises again

Source: International Monetary Fund, Balance of Payments statistics, Saudi Arabia, current account balance (present IMF figures, retrieved 1 October 2026).