Billion-Barrel Question

Two powerful visitors from the world of oil are due at the White House this week: Saudi Arabia's Crown Prince Fahd and his Harvard-educated Oil Minister, Sheik Ahmed Zaki Yamani. The two Saudis may be able to help answer a multibillion-barrel question that has been troubling Western countries for months: Will the price of oil go up again, further threatening the still fragile recovery from recession, or will fuel costs level off for a while?

So far, no one seems to know. The confusion stems in large part from a schism among the 13 members of the Organization of Petroleum Exporting Countries. At their December meeting in Qatar, the cartel broke into two warring camps (TIME, Dec. 27). Eleven members, led by Iran and Iraq, raised their prices by 10%, to an average $12.70 per bbl. (v. $2.30 per bbl. in pre-embargo 1973); they also agreed to hike prices a further 5% on July 1. But the Saudis and their allies, the United Arab Emirates, arguing that higher fuel costs would hamper the recovery of the industrialized world, raised their prices by only 5%. Today their oil, which accounts for one-third of OPEC's output, sells for $12.08 per bbl.

Some OPEC leaders have tried to close the rift, but so far without success. The latest attempt was made by President Carlos Andres Perez of Venezuela. In a fast-paced tour of the Middle East, Perez sought to persuade his warring OPEC colleagues to accept a compromise. His proposal was presumably along these lines: the Eleven would forgo the 5% price increase scheduled to go into effect in July; in return, so the speculation goes, the Saudis and Emirates would allow their prices to rise, gradually closing the 10% differential.

Perez is optimistic about an eventual settlement. But other OPEC leaders are being typically cantankerous. The three hard-liners for higher prices --Iran, Iraq and Nigeria--seem committed to press ahead with the 5% rise.

Big Losers. On balance, the Saudis and the Emirate allies appear to have been winning the price war. Despite winter storms that hindered tanker loadings at Saudi ports and heightened U.S. demand for imported petroleum, the lower Saudi and Emirate prices forced the increase in the average world price of oil to remain a couple of percentage points below the posted 10%. Now, as warm weather reduces heating-oil demand, the world oil market has softened somewhat, making price more important than ever. As a result, Saudi and Emirate sales have been soaring; Saudi output, averaging 10 million bbl. per day, has increased more than 15% since last year. A fire at an Aramco facility has temporarily crimped Saudi performance. Still, the big losers in the price competition have so far been Iran, whose production last month fell 16%. to 5.41 billion bbl., and Iraq, whose output is nearly one-third below its 1976 level.

On the eve of his White House visit, Yamani reaffirmed Saudi Arabia's determination to help the West's hesitant recovery by holding prices at their present level. Said he: "Unless you have a strong economy, you cannot be a good customer." He will get no argument on that point from Jimmy Carter.

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