Asleep in the Eye of the Storm

The drop in energy demand caused partly by the world recession, as well as the nine-month price freeze declared by the Organization of Petroleum Exporting Countries, has given the U.S. a brief respite from the energy crisis--a few months of abundant supplies and stable, though high prices. The nation should have used this period to plan strategy for freeing itself of its dangerous dependence on foreign oil. Last week it became painfully clear that the nation has instead fallen asleep in the eye of a storm. On Oct. 1, oil prices will almost certainly take another jolting jump, and the rise will apparently catch the country still without any energy policy worthy of the name. The week's developments:

OPEC met in Libreville, Gabon, and put on the record what was already obvious: it will "readjust" (meaning raise) oil prices again when the freeze ends Sept. 30. The 13-nation cartel named no figure, but President Ford reacted to nervous speculation that the increase would amount to $2 to $4 per bbl., on top of the current price of $10.46 per bbl. for the key grade of crude. Such a boost, said the President, would be "totally without economic justification."

The cartel voted also to quote oil prices not in dollars but in Special Drawing Rights--a type of global bookkeeping money created by the International Monetary Fund. The effect could be to inflate the dollar price of oil even more. The worth of an S.D.R. is based on an average of the value of 16 major currencies, including the dollar; lately the value of the dollar has been falling against most of the other currencies and thus against that of the S.D.R. If that slide continues, more dollars will be needed to equal an S.D.R.--or buy a barrel of oil.

Oil-exporting nations contend that they need a big price boost because Western inflation and the decline in the dollar have eaten away the purchasing power of the greenbacks that they receive by selling oil. In France, for example, the purchasing power of their dollars has dropped roughly 30% in the past nine months--about 10% because of French price increases, 20% because of a decline in the value of the dollar against the franc. This argument, of course, overlooks two screamingly obvious facts: a quintupling of oil prices since October 1973 has left the OPEC nations far ahead of the game, and the oil price boosts have mightily helped to fan the Western inflation about which they complain. Indeed, OPEC's plans reflect raw economic power; given their control of 68% of the world's proven oil reserves, the nations in the cartel can set prices just about anywhere they choose.

A Gutted Bill. The threat of another price increase should have moved the U.S. to take stern measures to conserve oil. Just the opposite happened last week. Acting irresponsibly, the House gutted an energy bill.

The measure had already been watered down before it was brought to the floor, but a key provision remained --raising the federal tax on gasoline, now 40 per gal., by 30 next year and by as much as an additional 200 if motorists were not being forced to conserve fuel. But the House voted down the potential 200 increase by a lopsided 345-72; then rejected, 209-187, even the 30 charge--leaving no additional gas tax whatever. Congressmen also rejected a tax on sales of gas-guzzling cars. They opted instead for a provision requiring the auto industry to improve the guzzlers' fuel economy. The industry could finance such improvement by charging higher prices for all cars, not just the thirsty behemoths. In addition, the House voted a quota on oil imports that will not reduce imports, but will slow their rise.

Congress's failure to legislate any tough energy program puts the burden on the Ford Administration, which has already doubled its tariff on imported oil, to $2 per bbl. But an argument broke out within the Administration over that scheme. Commerce Secretary Rogers C.B. Morton, who has a habit of dropping bombshells at breakfasts with reporters, let go another last week. Shortly after the orange juice, he confided that he might recommend scaling down or scrapping the tariff boost if OPEC does in fact raise prices. Morton's comment was repudiated immediately by Federal Energy Administrator Frank Zarb and then by President Ford. Nonetheless, Morton has a serious point: the tariff boost may not be the best way to reduce imports, it acts as a drag on essential as well as nonessential sectors of the economy.

Gas Changes. Ford has another strategy: to decontrol gradually the price of U.S.-produced oil and gas, letting them rise as a means of forcing conservation and encouraging new development. But even that came a cropper last week. A House Commerce subcommittee heard staff members of the Federal Trade Commission charge that the gas industry deliberately understated reserves in order to win high prices. For example, the FTC officials contended, in 1971 and 1972 Union Oil for internal purposes assessed gas reserves in an area off the Louisiana shore at 7.2 trillion cu. ft.; at the same time, the American Gas Association was officially estimating reserves in the same region at exactly half --3.6 trillion cu. ft. Justified or not, the accusations can hardly fire congressional enthusiasm for decontrol of oil and gas prices.

As a kind of grace note to this chaotic symphony, the House last week failed, by three votes, to override a presidential veto of a bill to regulate more strictly the strip mining of coal. As a result, somewhat more critically needed coal will be produced, but at the expense of the environment. The bill's environmental safeguards would not have compounded the energy problem if the nation had a coordinated energy policy. As it was, however, the vote merely highlighted the inability of the White House and Capitol Hill to come up with such a policy, or of the Democratic-controlled Congress to draft any sustainable energy program of its own. So long as that deadlock continues, the U.S. will apparently be left to OPEC's none-too-tender mercies.

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