Compared with past meetings of the 13-nation Organization of Petroleum Exporting Countries, last week's session on Indonesia's storied tropical island of Bali was relatively pacific. But disagreement ran deep. After two days of trying to determine whether or not to end the nine-month freeze on world oil prices, the ministers were unable to reach a decision, which in the case of prices requires the unanimous support of member oil-producing nations. As a result, the price of crude oil will remain at its present levels, but for how long is by no means certain. Though OPEC is not scheduled to meet again until December, some disgruntled representatives called for a special ministers' meeting in the next few months to reopen the troublesome price issue.
Recovering Economies. The outcome represented a substantial victory for Saudi Arabia and its oil minister, Sheik Ahmed Zaki Yamani, who had vigorously opposed even a token price boost. The decision was also good news for the U.S. and other industrialized countries—although their problems with energy and OPEC are far from over, and may get considerably worse in the months ahead.
The agreement was a disappointment for Iran's Interior Minister Jamshid Amouzegar, who led a bloc of OPEC hardliners, including representatives from Algeria, Libya and Venezuela. They argued for a price boost of 10% to 15% on grounds that inflation in the industrial nations has eaten into OPEC'S buying power. Iran, which has huge development bills to pay, has been badly hurt by the recession-induced drop in world petroleum demand and the consequent fall-off in oil revenues.
Speaking for the price doves, Saudi Arabia's Yamani insisted that any price increase now would damage the steadily recovering economies of the U.S. and Western Europe and cause another drop in world oil demand. One reason Yamani succeeded in carrying the day is because Saudi Arabia, which produces about a fourth of all OPEC oil, has the power to break the cartel: no price that it finds intolerable has a chance of sticking.
Despite last week's reprieve, the long-term outlook on prices is grim, largely because of the increasing dependence of the industrialized Western nations on OPEC oil. In 1973, for example, about 38% of the U.S. oil demand was being met by crude imported from foreign countries, most of it coming from Canada and Venezuela. This year, however, the U.S. will be forced to import 40% or more of its oil, most of it from OPEC member countries. By next year the economies of the U.S. and Europe should be getting into full stride, and oil demand cannot help but go up. Then, many experts think, the producers will be ready, willing and able to hike prices substantially; one top Administration official would not be surprised at an increase of 25%. Until the U.S. and other consumer nations can find a way to reduce their reliance on oil sharply, they can do nothing but pay and pay and ...