^{page 8 note (1)} We would like to acknowledge the useful comments made by Mr E. Jones and Mr J. Peters of Esso Petroleum Ltd. on an earlier draft of this chapter. Any errors of fact and all expressions of opinion remain the sole responsibility of the Institute.

^{page 8 note (2)} Given that the producer countries as a whole will be unable to spend all their increased revenue in the short run, the price rise can be seen as a large ‘exogenous' increase in the world's propensity to save.

^{page 8 note (3)} Petroleum Press Service, September 1973, page 345 (quoting from a study by the First National City Bank).

^{page 9 note (1)} The figures are little more than illustrative; oil pricing is in practice very complex, there being at the moment (1) a floor price (as shown in the table) which is the ‘take’ on the oil companies' equity crude, (2) the ‘buy-back’ price which is the price at which the host governments will sell that proportion of output which is covered by ‘participation’ agreements, and finally (3) a price for marginal oil on the free market. The latter reached levels of around $20 per barrel early in the year but has now begun to fall.

^{page 9 note (2)} Calculated using the oil import content, direct and indirect, of consumers' expenditure at market prices (table 12, page 46 for the UK (1968), OECD Economic Outlook Decem ber 1973, page 119; the OECD figures, given for 1963 or 1965, were uprated (rather crudely) by the ratio of the growth of oil consumption to that of GNP, table 5, page 13). The figures may be at the upper end of the likely range to the extent that domestic profit margins are fixed markups rather than per centages over costs, and to the extent that expenditure patterns switch towards less energy-intensive products and towards non-oil sources of energy, though the latter are likely to be more expensive than pre-October oil; freight rates are also likely to fall if less oil is shipped. On the other hand marginal oil has been fetching higher prices in the free market, prices for ‘participation’ crude (or ‘buy-back’ crude) have been raised by a larger amount, some producers are charging premiums for low-sulphur content supplies and proximity to the centres of consumption, and operating costs and company profits may rise, while the share of transport costs in Japanese supplies is lower than for many others.

^{page 9 note (3)} By which we mean that a cut of 30 per cent in oil con sumption this year is impossible—even though that would be the result of applying an elasticity of only 0.2 to a 150 per cent c.i.f. price rise.

^{page 9 note (4)} Assuming some oil ‘saving’ on the part of consumers— see below.

^{page 12 note (1)} Though lending might only delay the real resource transfer unless it were indefinite and interest—free—i.e. virtually grant aid.

^{page 13 note (1)} For arrivals from the Arab countries we have allowed a fall of 8-9 per cent (representing perhaps 13-14 per cent of the September production rate) and for the rest a rise of the same order.

^{page 13 note (2)} On top of an already-existing shortage, see page 15 below.

^{page 14 note (1)} OECD, op. cit., pages 15, 16. It is possible, however, that rather greater oil saving could be achieved by industry during the course of a year than is allowed for by OECD. In parti cular, coal could be substituted for oil in some industries in addition to the savings on space heating and lighting which OECD assumes.

^{page 14 note (2)} Though public transport may not be so easily available as an alternative to private motoring in the US—at least in the short run.

^{page 15 note (1)} The United States was traditionally self-sufficient in oil and gas supplies.

^{page 15 note (2)} 38 and 16 per cent of energy supplies respectively in 1970.

^{page 16 note (1)} Before the miners' industrial action, oil burning for electricity generation was being cut back in favour of coal, partly, presumably, because of the balance of payments situation. Exports of oil products also increased last year.