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The high prices will certainly discourage oil waste, but the producers have an exaggerated fear that they will soon run out of what the Shah calls "this noble product." The Middle East's proven reserves have risen every year since records were kept and have doubled since 1959, to some 350 billion bbl. Saudi Arabia alone has proven reserves of 132 billion bbl. —enough to keep producing at current rates until the year 2018—and some experts reckon that the real total could be four times as great.
Nobody knows what would be a "fair" oil price, but logically it should bear some relation to the cost of primary production. That cost ranges downward from $2.50 or so per bbl. in the U.S. to 60¢ in Venezuela and 12¢ in Saudi Arabia. The price should also have some market relationship to the price of alternative energy sources, which many authorities think would be economically feasible when oil sells at $7 or more per bbl. But with the latest round of oil price increases last month, the OPEC governments will collect $10.12 on a barrel. By contrast, the international companies earn 20¢ to 50¢ per bbl. in return for all the work, risk and investment that they undertook to find and pump that oil.
Thus, instead of the elusive terms of fairness, the argument is perhaps best couched in terms of ultimate self-interest. The oil producers may well be setting a dangerous precedent, for themselves as well as oil users. By exercising monopoly muscle as a group of nations, the cartel may be creating a world in which prices are neither fair nor free but fixed by raw economic power. Considering the fact that oil is about all they have to bargain with, that kind of world could eventually be dangerous for OPEC'S members. The oil producers quite frankly say that they expect the living standards of Western industrial countries to grow at a slower rate for the immediate future, and they cannot be expected to weep over that. But by forcing the change so suddenly, without giving the oil importers a chance to adjust gradually, OPEC runs the risk of wrecking the world economy—and that, OPEC spokesmen themselves have admitted, could only hurt them.
The Companies' Rich Past and Questionable Future
In all this, the role of the oil companies is growing weaker. The companies not only discovered and developed the oil but also put up billions of dollars to build rigs, pipelines, refineries and harbors. They have done so for more than 40 years, since long before the Saudis had much interest in oil, let alone the means to exploit it. The first prospectors—from Standard Oil of California—went to Saudi Arabia in 1933 and brought in the first well in 1938. They and later prospectors had a rugged frontier existence, living in tents and huts, relying on an 11,000-mile-long logistics line from the U.S., and coping with desert sand, burning heat and loneliness. In the late 1930s and early 1940s, they were joined by Exxon, Texaco and Mobil to form the Arabian