Higher cost for oil hurts Third World economies

September 12, 1990|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- President Saddam Hussein's offer of "free oil" to poor nations, although an empty proposal because of the economic embargo of Iraq, dramatizes the havoc confronting dozens of fragile economies of the Third World and Eastern Europe that depend heavily on imported oil.

For countries ranging from India and Bangladesh to Poland and Brazil, the fallout from the spiraling cost of oil is going to bring severe hardship because their economies are in far worse shape than they were after the last oil shock a decade ago.

"The oil exporters are going to win in terms of the economic effect of the crisis, but the oil importers definitely lose," said Sharif Ghalib, a Middle East expert at the Institute of International Finance.

At the behest of U.S. Secretary of State James A. Baker III, Saudi Arabia and Kuwait have promised billions of dollars to help pay for the military operations and to buttress countries hurt by the embargo and by spiraling oil prices.

European and Asian nations also have responded to an aid request from U.S. Treasury Secretary Nicholas F. Brady, although to a much lesser extent.

Much of the assistance appears earmarked for Egypt, Jordan and Turkey, whose support is vital to the United States in maintaining the embargo against Iraq.

Those countries had maintained close economic relations with Iraq and Kuwait and stand to lose heavily from the crisis -- so heavily that administration officials fear that without outside assistance, at least Jordan and Turkey might allow food and medicine to flow to Iraq despite the embargo.

Turkish officials estimate their nation will sacrifice $4 billion from the crisis, largely because of the loss of fees from its oil pipeline previously used by Iraq but also because of a loss of trade with Iraq.

Iraq was also a major trading partner with Jordan, which is bearing as well the brunt of the refugee exodus from Iraq and Kuwait.

Egypt stands to lose an estimated $2 billion to $3 billion of imported income a year from the huge number of Egyptian nationals who had worked in the fields and factories of Iraq.

For Third World countries in general, the oil shock could hardly come at a worse time. Most of them already suffer from desperately low standards of living, stemming from weak prices on commodities they sell abroad and from severe foreign debt burdens.

In the 1970s oil prices went up more rapidly than they have during the current crisis, but the developing nations were stronger then economically and in better position to withstand the jolt.

Finance ministers from the developing world are expected to express their concern over the economic outlook for their countries when they gather in Washington in 12 days for the annual meeting of the International Monetary Fund and its sister organization, the World Bank.

For the poorest African nations, the skyrocketing oil prices will result in less money to buy machinery from the West and to improve their standard of living, the lowest in the world.

India, which maintained close ties to Iraq, and other nations in Southern Asia are also major victims of the crisis.

Iraq and Kuwait employed tens of thousands of Asians, and India, Bangladesh, Sri Lanka and Pakistan were major trading partners with Iraq and Kuwait. Tea is Sri Lanka's largest export crop, and a fifth of it went to Iraq.

Asians who worked in Kuwait and Iraq sent millions of dollars home each year. These revenues are now lost, and the Asians are heading home to impoverished countries where jobs are scarce.

For Eastern European nations, the climb in oil prices will make their transition to a market economy considerably more difficult and possibly could lead to public discontent over price increases.

Starting in January, the former Soviet satellites will be required to pay for Soviet oil in hard currency.

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