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At year's end OPEC had almost come apart; at their December meeting in Caracas its members could not agree on any unified pricing structure at all. So long as supply barely equals demand, there will be leapfrogging price boosts; four countries announced 10% to 15% price hikes last Friday. In the longer run, the disunity could lead to price-cutting competition, but only if the industrial countries, and especially the U.S., take more drastic steps to conserve energy and reduce imports than any they have instituted yet—and even then OPEC might come back together. It is presumably not in the cartel's economic or political self-interest to bankrupt its major customers, especially since many of OPEC's member states have invested their excess profits in the West. Yet even moderate nations like Saudi Arabia, which have fought to keep price boosts to a minimum, argue that inflation price hikes will be necessary as long as oil prices are tied to a declining dollar.
A still greater danger is that the producers may not pump enough oil to permit much or any economic growth in either the industrial or underdeveloped worlds. The producers have learned that prices rise most rapidly when supply is kept barely equal to, or a bit below, demand; they have good reason to think that oil kept in the ground will appreciate more than any other asset, and the Iranian explosion has demonstrated that all-out production, and the forced-draft industrialization and Westernization that it finances, can lead not to stability but to social strains so intense that they end in revolution. The result of a production hold-down could be a decade or so of serious economic stagnation. Oil Consultant Walter Levy sees these potential gloomy consequences for the West: "A lower standard of living, a reduction in gross national product, large balance of payments drains, loss of value in currencies, high unemployment."
Warns Mobil Chairman Rawleigh Warner: "The West can no longer assume that oil-exporting countries, and specifically those in the Middle East, will be willing to tailor production to demand. The safer assumption is that the consuming countries will increasingly have to tailor their demand to production. And the factors that determine the ceiling on production are more likely to be political than economic or technical."
The West will be lucky if oil shortages are the worst result of Khomeini's revolution. An even more menacing prospect is a shift in the world balance of power toward the Soviet Union.
The Ayatullah is no friend of the Soviets. Far from it: while in his mind "America is the great Satan," he knows, and has often said, that Communism is incompatible with Islam. Tehran mobs have occasionally chanted "Communism will die!" as well as "Death to Carter!"
Indeed, Islamic fundamentalism could become a domestic worry to the Kremlin. Its estimated 50 million Muslims make the Soviet Union the world's fifth largest Muslim state.* For the Kremlin, Muslims represent a demographic time bomb. By the year 2000, there will be an estimated 100 million Soviet Muslims, vs. about 150 million ethnic Russians. Most of the Muslims live in areas of