ECONOMIC

This curtailment of supply does, of course, lead to adaptations. Pricesof oil imported into the United States are free from price control, as areprices of oil produced by certain small (stripper) wells and of "new"oil produced by other wells in excess of their base period production.These prices can be passed on in prices of refined products. Thus, a shortageof oil in the United States raises the prices of oil in these categories andincreases the supply, both of imported oil and of domestic oil, offsettingsome of the initial effects of the curtailment. Also the higher prices reducethe quantity consumers and businesses want to buy. Therefore, the wholeinitial curtailment does not appear as a gap between desired quantities andavailable quantities.In time, and despite the existence of the price controls, prices might riseenough to clear the market, and there would be no "shortage" in the senseof inability to buy petroleum products at the prevailing prices. The uncontrolledprices, whether of imports, of "new" oil, or of oil from stripper wells,would rise to a level which, when averaged in with the controlled prices,would equate the quantities demanded and supplied. Although prices ofpetroleum products in the United States rose very rapidly after October 1973,and this apparently served to cut down the desired consumption, they hadnot risen enough by the end of January to eliminate shortages. The impactof the remaining shortages is being distributed through the economy by allocationsand other controls, by voluntary conservation measures, and to someextent by a first-come-first-served process.The Secretary of State has recently expressed the hope that the embargoon the export of oil to the United States from some Arab countries wouldsoon be lifted. The effect of such action on the U.S. economy would dependupon the price and production policies of the oil-exporting countries. Thehigher their production levels, and the lower the world price, the smallerwill be the current economic problems for the United States and for otherimporting countries. In any case it seems necessary to reckon with a significantlyhigher price for imported oil in 1974 than in 1973, although howmuch higher is uncertain. This conclusion would imply smaller U.S. importsthan would otherwise have occurred, but a larger dollar cost of imports. Itis probably also reasonable to assume that the curtailment would increasinglybe reflected in higher domestic prices rather than in shortages at the existingprices.This combination of limited oil imports and higher prices will have fourkinds of economic effects in the United States and in other oil-importingcountries.1. Limitation on capacity to produce. Beyond some point, inadequacy inthe supply of energy can make it impossible to produce certain products, orhigh energy prices can make it impossible to produce certain products atcosts at which they can be sold. However, it does not appear that this pointwill be exceeded or that our capacity to produce will be significantly curtailedby the energy situation. Part of the U.S. energy supply is utilized24