The Cold Light of Levy

In a mood perhaps too wishful, some top bankers have insisted lately that the OPEC oil cartel's domineering note in the world economy would soon diminish. But last week Walter Levy, dean of U.S. oil experts, punctured that optimism. In a closely argued study, he contends that OPEC's balance of payments surpluses--and high prices--will continue disrupting the global economy at least through the early 1980s.

Recent analyses by New York's First National City Bank, Chase Manhattan and Morgan Guaranty Trust suggest that OPEC's trade surpluses will peak around 1978 and actually swing to a deficit, perhaps of $56 billion (Morgan Guaranty's figure), by 1980. But Levy, one of the most widely respected private U.S. oil consultants, estimates that by 1980 the 13 OPEC countries will still be pulling $50 billion a year more in oil revenues out of the rest of the world than they return through purchases of goods and services. By then their accumulated surpluses of foreign liquid assets will amount to a staggering $450 billion, which could unbalance the world monetary system.

Levy does not believe the OPEC countries can increase their imports as rapidly as the banks assume. Morgan Guaranty predicts the OPEC countries' imports will grow by 20% a year. Levy concedes that OPEC imports rose even more than that last year, but doubts the oil countries can keep up the pace. The thinly populated Arab states lack the expertise, labor, port facilities and inland transportation network necessary to handle that big a tide of foreign goods. In addition, many of last year's imports were fighter planes, tanks and other highly destructive weapons, and there are questions of how much longer the Western nations will continue selling so much dangerous gear.

Levy also believes that the oil exporters will raise prices steadily, perhaps by as much as 12% this year and 7% annually thereafter. By 1980 he expects the key grade of oil to be selling for $14.65 per bbl. v. $10.46 now. Even if oil prices drop temporarily, he contends, the decline would fuel a boom in the industrial world; this in turn would lead to such an increase in oil demand that OPEC could put prices right back up again.

Coldly Realistic. In sum, Levy persuasively reasons that paying for oil will continue to be a burden, heavy even for the industrial states and crushing for the many poor countries that do not possess oil. He fears that attempts by each nation to cure its own deficit could lead to "a mushrooming of new barriers to trade" that oil importers would erect, not against OPEC but against each other. In his coldly realistic report, Levy predicts it will take at least three or four more years than the banks anticipate--or roughly until 1983-84--before the problem begins to diminish. Meanwhile, his latest analysis suggests no way out of the box. But he has previously voiced hope that a united front of oil importers could convince OPEC that it is not even in the cartel's own long-run best interest to bankrupt its customers for the sake of earning high revenues that the oil countries cannot profitably use.

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