The Desert Foxes

For weeks, a score of Western petroleum companies have been fencing with the ten members of the Organization of Oil Producing Countries (OPEC) over the question of higher payments. Inspired by Libya's left-wing revolutionary government, the OPEC countries* have abandoned old political rivalries and joined to squeeze the oil companies--most of them American. At every opportunity, the countries have threatened to cut their customers off without a drop, thus depriving Western Europe of 85% of its oil, Japan of 91% and the U.S. of 18%. Last week talks between the companies and six Persian Gulf members of OPEC broke down, precipitating the most serious international oil scare in years. Western government and oil-company officials nervously pored over refinery records, maps of tanker routes and intelligence reports from their agents afield to determine how much oil they had on hand --and where they could get more.

There has been a fundamental change in the oil business. Companies used to be able to play off one country against the other by shopping around for their oil. But after the Suez Canal was closed in 1967 and the Trans-Arabian Pipeline was ruptured for eight months, demand for space in tankers rocketed and distance from markets became crucial. OPEC members, many of which are a short trip by tanker from the heart of Europe, sense that power is now in their hands, and they are taking advantage of the turnabout to settle some old scores. They argue that posted prices--the generally static figures on which their share is based --were imposed on them by the West decades ago, when oil was not as much in demand as it is today. They note with irritation that, while a barrel of crude in Western Europe yields an average of $8 in the marketplace, they get only about $1 out of it. The rest goes into production, transport, refining and marketing costs ($3), oil-company profits (50-c-) and taxes collected by the consuming countries ($3.50). Even more infuriating to the predominantly Arab group is that the oil-consuming governments of the West have largely favored the Israeli cause.

It is unlikely that the producers will go so far as to halt output. Most OPEC members depend on a steady flow of oil wealth to finance frenetic development programs.

When the talks foundered last week, the two sides were far apart. The average posted price of crude is $1.79 per bbl. The companies offered an increase of 27-c- in 1971, rising to 43-c- by 1975, but OPEC demanded an immediate 49-c-, rising to 87-c-. The Shah of Iran has announced that on Feb. 15 all ten countries will raise the prices, take it or leave it. The companies will probably take something close to that and then pass most of the rise to the consumer. Indeed, company executives at week's end were beginning to prepare public opinion for the inflationary blow of higher prices. Some oilmen noted that there was a measure of justice in the OPEC position and that, at worst, the immediate price hike may amount to only 2-c- per gal. at the gasoline pump. But the international consequences would be enormous. A package of increases starting at 30-c-, which many oilmen believe is a reasonable compromise, would lead to an additional payment of about $9 billion over the next five years to the Gulf countries alone. That would damage the payments balances of all the oil-importing countries, especially developing nations that are poor in both money and oil, like India and Ghana.

The oil users might curse their dependence on the OPEC countries, but nowhere else can they find oil so cheap and accessible. Alaska's reserves are no more than 10% as large as those of the Mideast, and North Slope oil will not be on the market until 1974 at the earliest. The amount of oil trapped in shale in the Rocky Mountains could match the treasures of the OPEC countries, but it would require an investment of billions to extract. Nuclear power has not yet realized its early promise.

Still, OPEC's new militance will spur the consuming countries to develop new supplies of energy from all those sources. The U.S. is likely to take steps to achieve a greater degree of self-sufficiency--and that will weaken the campaign for more liberal oil-import quotas and lower depletion allowances.

* The members, in order of output, are Venezuela, Iran, Saudi Arabia, Kuwait, Libya, Iraq, Algeria, Indonesia, Abu Dhabi and Qatar.

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