Teaming Up Against OPEC

Government moves toward partnering with industry in a "NASA for Energy

Forty dollars a barrel for oil? With the official world price at $14.55 per bbl, the notion sounds incredible. But not to oilmen. Items: when the Persian Gulf sheikdom of Abu Dhabi two weeks ago offered a shipment of high-grade, low-sulfur crude for sale at $40 per bbl., it found an immediate and eager buyer in Japan; Ecuador had no trouble getting $36 per bbl. in a sale of its own; Standard Oil Co. of Indiana admits difficulty in scraping up supplies for less than $35 per bbl. anywhere.

It is against this backdrop of Oil at Any Price that Jimmy Carter and the leaders of Western Europe, Canada and Japan will sit down next week in Tokyo for two days of talks on energy and the imperiled world economy. Exactly 48 hours earlier in Geneva, the 13-nation Organization of Petroleum Exporting Countries will also gather--and take a step that will surely make the energy squeeze worse: another increase in price. Meanwhile, demands are rising both in the Congress and from the U.S. public that Washington launch a war-effort type of national program of cooperation by Government and industry to end U.S. dependence on OPEC and its oil.

For the third, time in six months, the price-fixing cartel will lift the cost of its crude, and the question is how much more of such treatment the world economy can endure. Since last December, official, cartel-wide increases have pushed up the basic cost of mankind's most important energy resource by 14.5%, gravely inflaming global inflation. Worse, surging demand has enabled the OPEC nations to tack on one premium and surcharge after another, raising the actual price for most grades by as much as 30%, to $17 or more per bbl. Next week such cartel militants as Iran, Algeria and Libya will press for an additional jump of at least 40%. To make the extortionate price stick, Iran's oil chief, Hassan Nazih, declares that Iranian production, which is now little more than half its prerevolutionary 6.5 million bbl. daily, will be cut even further, perhaps to 3 million bbl. per day.

Though the label hardly seems apt any more, even self-styled moderate OPEC members are talking of a double-digit increase. Saudi Arabia promises to try to "hold the line" with a raise of a mere 20% to 25%, arguing that this will remove the need for premiums and surcharges. But only a sharp increase in production will accomplish that, and so far the Saudis have given no sign of being willing to boost their output of 8.5 million bbl. per day by more than 500,000 bbl.

Any price rise will be too much. The world is still struggling to recover from the cartel's first blast of increases in 1973 and 1974, and the almost weekly current jumps have kept economists busy scaling back their global growth forecasts for 1979 and the 1980s.

Financial problems also loom, especially for the developing nations. They have already run up some $220 billion in debts since oil prices began climbing almost six years ago, and the latest rises could add some $6 billion more to the burden by year's end. Fears are growing of defaults that would shake the private Western banks that have done much of the lending. Turkey, Sudan, Bolivia, Zaire, Zambia, Jamaica and other countries are in trouble.

Last week Chase Manhattan Chairman David Rockefeller warned that OPEC's wealth is rising so high that bankers may no longer be able to reinvest it, and he urged that international governmental agencies try to cope with the flood.

Last week, too, the Carter Administration was publicly quarreling with itself over exactly what policy the President would be taking to Tokyo. According to Administration hardliners, the U.S. would urge a new "get tough" attitude toward OPEC, and warn that if Washington's allies do not cooperate, the U.S. would be prepared to go it alone. Nonsense, sniffed officials at the Department of Energy and the State Department. They contend that the only people advocating a tough guy approach are Treasury Department holdovers from the Nixon years.

Although some Administration spokesmen insist that the U.S. position is not intended to pick a fight with anyone, the internecine squabble has only served to mystify Europeans more than ever. At the least, the nation's allies rightly wonder what the U.S. has to get tough with in the first place. Moral questions aside, military action would be a tactical nightmare. Nor does the nation have much of an economic weapon against OPEC. Cut off grain exports? Argentina or even India could sell much, if not all, of the grain that OPEC needs. Embargo U.S. military equipment sales? France and others would be only too happy to replace them.

Signs abound that Americans are losing patience with the Administration's weekly parade of officials to testify before congressional committees on "scapegoat of the week" questions, like whether it is the oil companies or the gasoline retailers, or even Government bungling itself, that is to blame for the energy pinch. In a remarkable press conference last week, Energy Secretary James Schlesinger expressed optimism about gasoline supplies for the remainder of the summer on the basis of a one-week increase in foreign oil imports. Yet almost in the next sentence, he was attacking the oil industry for not refining the crude as rapidly as in previous weeks. While he was speaking, lines of motorists at Washington, D.C., service stations were reaching their longest lengths since the 1973 Arab oil embargo.

As the Administration has repeatedly emphasized, conservation is a necessary component of any energy program, and Americans are more prepared to support the effort than they are given credit for. A New York Times/CBS News poll last week showed, for instance, that the public would far prefer gasoline rationing to the present skyrocketing price of the fuel.

Congress's sea change from generalized energy skepticism to a mood of "Let's produce" reflects the refreshing new perception in the nation. As a top Energy Department official observed to TIME Washington Correspondent Richard Hornik, "All of a sudden there must be 40 different energy production bills floating around on the Hill. A year ago, when we tried things like that, we were laughed off and accused of empire building."

Last week one of the oil industry's most outspoken critics, Henry Jackson of Washington, chairman of the Senate Energy and Natural Resources Committee, joined with 19 co-sponsors in introducing a nine-point Energy Supply Act. The program, which would cost many billions of dollars, calls for a new energy partnership between Government and industry.

The House Banking Committee has already approved a less ambitious partnership plan of its own. Its bill, an amendment to the Defense Production Act of 1950, would permit the Government to become the buyer of last resort for up to 500,000 bbl. daily of oil from coal, shale and other alternative sources. That would amount to about 8% of current U.S. imports. For now, the synthetic fuel is too expensive to compete with OPEC crude, but the Government's guaranteed market for the product would encourage companies to invest and get the new industry off the ground.

The plan would also help set a free-market ceiling price for oil in the U.S. itself. Reason: If OPEC tried to sell crude at a higher price, customers would turn to the synthetic fuel instead, and rising demand would encourage companies to boost output and build more plants. Says the bill's author, Pennsylvania Democrat William Moorhead: "The need for this approach is clearly established, and private enterprise is just not powerful enough to go it alone." Adds Irving Shapiro, chairman of Du Pont chemicals: "During war we declare a national emergency, pass a war powers act and give the President the authority to do things necessary to win the war. Now we should pass an energy powers act, to give the President the power to set aside unnecessary regulations and barriers to the production of energy."

The U.S. needs all the energy that it can possibly get from within its own borders, and a NASA-or Manhattan Project-type effort would signal to OPEC's price gougers that their days of unrestricted domination and tyranny over the world's biggest single market for oil are coming to an end.

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