OPEC Deadlocks in Geneva

Two days of wrangling and no deal on anything

When delegates to the 60th ministerial session of the Organization of Petroleum Exporting Countries gathered in Geneva's Intercontinental Hotel last week for the group's spring conference on pricing and production strategies, the rifts dividing the world's oil producers were deeper than ever. Global demand for OPEC'S sky-high-priced product is now weakening in markets everywhere, and stockpiles are steadily swelling. The result is that oil prices in some places are actually declining. But despite the softening oil market, the 13 oil ministers last week were unable to agree upon the one tactic that petroleum-consuming countries fear the most: a cut in production coupled to a rise in price.

Though a communique at the close of the two-day gathering asserted that a "majority" of the organization's members had agreed to a 10% production cut along with a price freeze in the range of $36 to $41 per bbl. until January, the agreement had no practical effect. Neither Saudi Arabia, OPEC's largest single producer, which accounts for more than 40% of the group's daily output, nor Iran and Iraq, two of the other major suppliers, agreed to the production-cutting provision. All the cuts will have to be carried out by the smaller producers, which are more in need of their oil income and thus less likely to fulfill their promises to reduce output.

Though the oil ministers did much rhetorical waltzing during the two-day session, they were never able to break the deadlock that has for months gripped the cartel. Saudi Arabia has been pushing for pricing moderation against a group of price hard-liners led by Libya, Algeria, Iran and Iraq. Throughout the conference, Saudi Arabia's petroleum minister, Sheik Ahmed Zaki Yamani, offered to raise the price of Saudi crude, now selling for as little as $32 per bbl., to perhaps $34. In return, the Saudi negotiator insisted that the price hawks cut their prices from $41 per bbl. to no more than $39.

The cartel's hard-liners argued equally insistently that the Saudis had to help tighten the market by cutting production and raising prices. For the past eight months Saudi output has crested at 10.3 million bbl. daily, or about 2 million bbl. more than the desert kingdom produced three years ago. This is a key reason why worldwide petroleum inventories are now bursting with some 2 million bbl. daily in excess crude oil output.

The deadlock was immediately obvious when the 13 ministers sat down Sunday evening in a private hotel dining salon for a secret preconference dinner. While the delegates ate lobster mousse and lamb noisettes, Yamani bluntly laid out the Saudi terms. The stonewalling response by cartel hard-liners led Conference Chairman Subroto of Indonesia to confess later that little remained except to "get through two days of meetings."

Strains among the ministers were evident throughout the session. Not only was the meeting split over the pricing and production questions, but two of the group's members, Iran and Iraq, are still at war. Sitting within arm's reach of each other at the felt-draped conference table in the hotel's grand ballroom, delegates from the two states could barely conceal their antipathy. Snapped acting Iranian Petroleum Minister Hassan Sadat at one point in the proceedings: "I am not the minister. Our minister is being held prisoner and being tortured by the Iraqis." Near by, Iraqi Oil Minister Tayeh Abdul-Karim sat in stony, scowling silence.

Repeatedly in recent years, Saudi Arabian efforts at OPEC conferences to hold down price increases have been followed months later by the very price rises that the desert kingdom had earlier resisted. Industry experts do not rule out such action again, if the Saudis deem it in their self-interest.

Energy officials in Washington were encouraged by last week's meeting be cause OPEC did not raise prices anew, but they did not believe that this was a sign of any enduring weakness in the organization. Said one State Department expert: "OPEC in the past has shown a remarkable ability to bounce back and function well, and I believe that it can still do that."

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