Strange Bedfellows in Vienna

By Daniel Benjamin

With ample reason, nonmembers have never been especially fond of OPEC, but no one would know it from the looks of the chummy gathering in Vienna last week. Suddenly oil-country diplomats who only a few years ago would have been mortified to be seen cooperating with OPEC were showing up and making conciliatory gestures. A Chinese official was there, chatting with his counterpart from Mexico during a photo session. An oil-patch emissary from Texas mingled on the sidelines with ministers from Malaysia and other countries. Even an observer from the petrol-pumping province of Alberta, Canada, joined the unique assemblage.

It was the first time in the history of the Organization of Petroleum Exporting Countries that the group has met officially with ministers from nonmember states, in this case Angola, China, Colombia, Egypt, Mexico, Malaysia and Oman. As the oil czars gathered, the petroleum industry watched and wondered: Was a new, super-OPEC forming? Just the prospect of the meeting had sent the price of West Texas intermediate, the benchmark U.S. crude, rising more than $3.50 per bbl. during the previous two months, to a peak of almost $19 before the gathering. But after conferring for six days last week, the ministers were still struggling to forge an agreement that would prop up prices by throttling back the world's oil output.

The meeting was motivated by the long, grinding decline in oil prices that has strapped petroleum-rich countries the world over. A decade ago, when OPEC controlled the bulk of oil output, the group could boost prices at whim. But as OPEC's share of the world's oil market has dwindled, from 56% in 1973 to 33% today, so has the group's control over prices. OPEC has tried to persuade its increasingly productive rivals to limit their output, but they have nonetheless pumped freely and helped swamp the market. They hitherto saw no reason to cooperate with OPEC, since several of the group's members were cheating on production quotas anyway.

But the persistence of the glut this spring finally prompted several non- OPEC nations to agree to a summit with OPEC. While some of the biggest producers declined to participate (among them Britain, the Soviet Union and the U.S.), the meeting was a somewhat threatening development for oil-gulping countries. That includes the U.S. as a whole, which imports 37% of its daily consumption. Energy Secretary John Herrington, on a seven-nation swing through Southeast Asia, was inspired to lecture non-OPEC countries that the Reagan Administration was opposed to any manipulation of the price of oil. He told TIME, "The efforts to establish a worldwide cartel will end in failure."

In Vienna six of the seven non-OPEC summiteers (Colombia excluded) came up with a proposal for boosting prices. They promised to cut their crude-oil exports by 5% if OPEC would do the same. The cutback would be easier for the smaller group to accomplish than for OPEC. Among the six, a 5% reduction would amount to only about 200,000 bbl., while for OPEC it would be more like 700,000 bbl. In return, OPEC members debated a counterproposal that would reduce the group's total production by 300,000 bbl. a day.

The Oil Minister from Iran, which is eager to boost its income to help pay for its 7 1/2- year-old war with fellow OPEC member Iraq, heartily endorsed the 5% solution. But Hisham Nazer, the influential Saudi Arabian minister, was cool to the proposal. His country's severing of diplomatic ties with Iran last week after years of conflict with its Persian Gulf neighbor did not help matters.

Perhaps the most ironic aspect of the meeting was the presence of Kent Hance, a member of the Texas Railroad Commission, which regulates oil production in that beleaguered state. While Hance, 45, had no mandate or inclination to negotiate production cuts on the part of Texas or the U.S., he went to the meeting to "share our experience ((and)) give them our insight on how prices could be stabilized." Texans, who have felt neglected by the rest of the U.S. in recent years, sometimes like to point out that if their state were a member of OPEC, it would rank among the group's largest producers, trailing only the Saudis, the Iraqis and the Iranians.

A former three-term Congressman, Hance met with most of the attending ministers and exhorted them to limit production and boost the price of their crude, an activity that has earned him opprobrium in Washington and some appreciation in Texas. Said an Administration official: "It's his personal business. It's nothing we condone, but we can't stop him." Hance contended that he has no interest in any formal alliance with OPEC, but he added, "What they do here in Vienna has more effect on the Texan economy than what the ! state government does in Austin. For us not to be here and have some dialogue and communication is ridiculous."

While the oil surplus is expected to endure for several years, prices are likely to increase somewhat over the next few months. Whatever OPEC resolves to do, the main impetus for rising prices is likely to be heightened demand from a growing world economy and oil-guzzling consumers. Gasoline demand in the U.S. has returned to preconservation levels, topping 7 million bbl. a day during the first quarter of this year, the highest rate since 1979.

Like many oil-patch authorities, Hance sees dark portents in today's fuel bargains. "If prices continue at this level, there will be very little new U.S. well drilling, and imports will rise," he argues. According to his commission's projections, imports will reach 50% within the next 18 months and 65% in 1991-92. Says Hance: "Then I can see gasoline at the pump costing $2 a gallon." That projection, even if it represents an extreme scenario, sure takes the fun out of driving at 65 m.p.h.

CHART: TEXT NOT AVAILABLE

CREDIT: TIME Chart by Joe Lertola

CAPTION: SPRINGING A LEAK

DESCRIPTION: Crude oil production in millions of bbl. a day by OPEC and non- OPEC countries, 1973-1987; Color illustration of can dripping oil onto head of Arab.

With reporting by Gisela Bolte/Washington and Gertraud Lessing/Vienna