Despite the decline in the dollar's purchasing power over the last year, Saudi Arabia - the world's leading oil exporter - has pledged to continue pegging oil pirces to the dollar and to accept dollars for oil its sells.
As the largest oil producer in the 13-member Organization of Petroleum Exporting Countries, Saudi Arabia's commitment to continue linking oil prices and payments to the dollar virtually ensures that the other cartel states will also continue accepting dollars for the more than $100 billion they collect annually for oil.
Asked if a move away from the dollar was under consideration or at all likely, Saudi Minister for Industry and Electricity Ghazi Algosabi said yesterday, "Categorically no, because our link to the American economy is an organic one - we feel our economy is interdependent with the industrialized world, and with the U.S. in particular."
[TEXT OMITTED FROM SOURCE] dropped by almost 20 per cent against the Japanese yen, and by smaller amounts against the West German mark and the Swiss franc.
Some members of the oil cartel, including Algeria, Iraq, Indonesia and Venezuela, argued for an oil price increase at the cartel's December meeting in Caracas because of the erosion in the dollar's purchasing power.But Saudi Arabia and the cartel's second largest producer, Iran, persuaded the others to argree to a price freeze.
"We want closer economic and social ties with the U.S.," Algosabi said, explaining the rationale for the Saudi policy.
The Saudis have accumulated more than $60 billion in foreign assets, most of which are in dollar holdings in U.S. and European financial markets since oil prices quadrupled in 1973. The dollar's decline, monetary experts say, has cost the Saudis millions of dollars in income over the last year.
Last month Saudi Oil Minister Ahmed Zaki Yamani said the Saudi were considering a proposal for the next OPEC meeting to set oil prices based on several currencies. The Saudi Council of Ministers headed by Crown Prince Fahd afterwards decided to continue linking oil prices and payments to the dollar despite the drop in the dollar's value in foreign exchange markets.
The dollar's drop is attributed to the hefty U.S. trade deficit, estimated at $30 billion for 1977, which resulted in a current account deficit of nearly $18 billion. Ironically, much of this is a result of the almost $48 billion the United States spent last year on oil imports.
One of the most powerful men among the American-educated technocrats in the Saudi cabinet, Algosabi presides over the massive industrialization projects that are the center-piece of the Saudis' $142 billion, five-year plan. The plan includes a $14 billion country-wide natural gas gathering project; five petrochemical projects worth a total of more than $10 billion, and planned facilities to process bauxite from Australia or South-east Asia, and iron ore from Africa - most likely from Zaire - or Brazil.
"Saudi Arabia is going to be a very important center for the world's petrochemical industry," Algosabi says, adding, "The sooner the international petrochemical companies realize that fact the better it will be for all of us."
Four of the petrochemical plants are going to be 50-50 joint ventures with American companies, Exxon, Mobil, Dow Chamical, and the American arm of Royal Dutch Shell. The first contract for the $1.7 billion Shell plant, to be located at Jubail on the Persian Gulf, which has been under negition for two years, will be signed in the next month. Like most of these projects, it will also be constructed by an American company, Fluor.
"We realize we are new to the field." Algosabi says, denying suggestions that the Saudis plan on becoming the so-called "eigth sister" in the world oil and petrochemical markets that are dominated by the seven largest international oil companies.
When these plants are completed in the early 1980s, the Saudi will be among the second or third largest petrochemical producers and exporters in the world.