Bali High for Oil Prices

By Julie Connelly

The cartel squabbles and then hikes the cost of crude

The oil ministers of the 13-nation Organization of Petroleum Exporting Countries gathered under unusual circumstances last week amid lush tropical greenery on the resort island of Bahi, Indonesia. For the first time in the group's history, two of its members were at war, and the battlefield confrontation threatened to spread into the conference room, thus weakening the cartel's fearsome control over oil prices. But after a two-day meeting, the OPEC nations agreed unanimously not to let the war between Iran and Iraq get in the way of boosting the price of oil by $2 to $4 per bbl. The price of Saudi Arabian light crude was hiked $2 and set at $32 per bbl., while the official ceiling price for oil sold by any OPEC member was increased by $4, to $41 per bbl. The price increases will jack up the world's oil bill by an estimated $26 billion in 1981. The message from Bali was clear: oil and profit are still powerful enough forces to keep even warring nations working together.

The energy producers have been squabbling among themselves all year. Saudi Arabia and Libya broke off diplomatic relations last October when Libyan President Muammar Gaddafi urged Muslims not to make their annual pilgrimage to Mecca because he claimed that the shrine had been desecrated by U.S. radar surveillance planes flying overhead. And after the outbreak of the war between Iran and Iraq, the cartel had to cancel a gala meeting in Baghdad in November that was to have celebrated the group's 20th anniversary.

The Iranians arrived in Bali insisting on their right to denounce Iraq's invasion of their country three months ago and its continued detention of Iranian Oil Minister Mohammad Javad Tondguyan as a prisoner of war. When the conference opened, they disrupted the proceedings by propping a 2-ft. by 3-ft. photo of Tondguyan in the chair reserved for Iran's chief delegate. To protect its Oil Minister, the Iraqi delegation packed 17 guns at the conference. Some Iraqi aides wore guns even inside the meeting room in defiance of the security regulations of their Indonesian hosts.

The two factions were kept apart by the Indonesians, who sat between them at all the meetings. Professor Subroto, the Indonesian Energy Minister, headed off a vote on including Iran's denunciation of Iraq in the official record by telling the legend of the man who must decide whether to eat a fruit, in which case his father will die, or not to eat it, in which case his mother will die. Said Subroto at the end of the meeting: "OPEC demonstrated that even with a war between two of its members, it can continue to function."

Some energy experts, nonetheless, maintain that the Bali agreement showed again the difficulty that the cartel is having agreeing on prices. Said one European Community official: "You can hardly call a meeting at which over half the tune was spent arguing about a war between the two most powerful military members a resounding show of unity." For more than two years, Saudi Oil Minister Ahmed Zaki Yamani has been trying to restore a unified price for OPEC crude. But the spread between the Saudi bench-mark or "marker" price and the cartel's ceiling price after the Bali meeting has grown to $9, thus allowing individual members considerable room to set their own oil prices free of the cartel.

The impact of the Bali decision on energy-consuming countries will be serious. West Germany's oil bill will climb $3 billion from this year's $30 billion, and Japan figures that it will be paying out another $5 billion on top of 1980's $60 billion. In the U.S. the oil tab will also rise by $5 billion, to perhaps as high as $100 billion. Higher crude prices will quicken the pace of inflation in all Western countries. Washington experts predicted that in the U.S. the OPEC decision would boost the cost of gasoline at the pump by 4.70 per gal. and the price of heating oil by the same amount.

The White House reacted strongly to the latest oil cartel action, but the protest sounded similar to those of past years. Said presidential Press Secretary Jody Powell: "We do not consider these increases to be justified, particularly in the light of the good record of the U.S. and the industrial world in restraining demand."

Such objections, however, are not likely to have any real impact on OPEC decisions. Much more important is the state of world petroleum markets, which are currently afloat in oil. Worldwide demand for the black gold was off by about 2 million bbl. a day in 1980. Some production has resumed in Iran and Iraq, and the Saudis are continuing to pump about 2 million bbl. a day extra to make up for the shortfall caused by the Iranian revolution and by the destruction resulting from the Persian Gulf war. This has permitted oil companies and major petroleum-importing countries to maintain large reserves as a cushion against future price increases or production shortfalls. World reserves are about 300 million bbl. above normal for this period, and both the U.S. and Japan have decided to increase their stockpiles. Without that small world glut, OPEC would probably be pushing up prices even faster. Libyan Oil Minister Abdul Salam Zagaar, who is normally one of the OPEC hawks, said after the Bali meeting: won't ask for higher prices if the market won't permit it."

This situation of relatively easy oil will not last indefinitely. Two weeks ago, an Iranian air attack against installations near Kirkuk knocked a key pumping and distribution center As a result, oil has stopped flowing through two of Iraq's four pipelines, reducing exports by almost 1 million bbl. a Saudi Arabia is also threatening to its production and send oil prices $50 per bbl. Oil Minister Yamani is demanding that world energy companies carrying heavy stocks start them down faster and that West nations stop squirreling more oil away strategic reserves. Indeed, the Saudis prod Western countries to remind them that OPEC price restraint or petroleum production could end at any time.

-- By Julie Connelly.

Reported by Ross H. Munro/Bali

With reporting by Ross H. Munro

This file is automatically generated by a robot program, so viewer discretion is required.