OPEC'S Price Doves Win a Big One

Judging from past sessions, nobody expected the meeting in Vienna last week of the ministers of the 13-nation Organization of Petroleum Exporting Countries to be a quiet affair. But few foresaw what by week's end had become a dramatic and bitter tug of war between the cartel's two major producing nations, Saudi Arabia and Iran. After four days of fierce wrangling, the members compromised Saturday on a hike in world oil prices of only 10%, or about $1.05 per bbl., well below the 35% or so that had been bruited about a few months ago. The new price will be frozen for nine months.

Less Than 1-c-. President Ford worried that the boost will "worsen inflation throughout the world," and Treasury Secretary William Simon said that though U.S. economic recovery will not be stalled, the increase "illustrates that we are still captives of OPEC." Secretary of State Henry Kissinger, meanwhile, took a milder view. Said he: "It seems better than it could have been."

The new increase, which took effect Oct. 1, follows a nine-month price freeze imposed by the cartel last December. World prices had been pegged to the $10.46 that Saudi Arabia charged for a 42-gal. barrel loaded at the Persian Gulf port of Ras Tanura. In the U.S., which imports about a third of its oil, the increase when averaged in with prices of domestic oil will add less than 10 per gal. to the price of gasoline, heating oil and other products. Most other nations import a greater percentage of their crude and will feel the increase more, especially those in the underdeveloped Third World that are already struggling with massive deficits caused by ballooning oil prices (up 400% in less than two years).

The boost finally decided will raise further an already greatly inflated price. Still, the moderate size of the increase represents a huge victory for OPEC'S price doves, led in Vienna by Saudi Arabia's Oil Minister Ahmed Zaki Yamani. He was joined, surprisingly, by the delegation from Algeria, previously a hard-liner on oil prices. On the hawk side, a bloc including Libya and Iraq lined up behind Iran's Interior Minister Jamshid Amuzegar to demand initially a boost of 20% or more. Personally, no love is lost between Amuzegar and Yamani, and the arguments became sulfurous. At one point, Yamani stormed out of the closed meeting. He then caught a plane for London; he returned late the next morning, delaying the session by 90 minutes. For his part, Amuzegar claimed the support of most OPEC members and in one hotel-lobby interview, in an obvious swipe at Yamani, asserted: "No one country can dictate its views to twelve other countries."

Still, the OPEC hard-liners contended that the cartel should post a big price boost because inflation in industrial nations and the sharp drop in demand caused by world recession had slashed the member nations' buying power (see box). In the end, though, that argument foundered on four basic realities. Perhaps the most important one is that Saudi Arabia, which produces about a fourth of all OPEC oil, has the power to break the cartel if it chooses; no price increase that it finds intolerable has a chance of sticking. In addition, a huge price boost would have retarded the recovery of industrial nations from the world recession, thus slashing petroleum demand and OPEC countries' revenues even more.

Moreover, OPEC's buying power in recent months has been markedly strengthened by the sharp rise in the value of the dollar, the chief currency used in oil transactions. Rising interest rates and relatively rapid economic recovery in the U.S. have caused the dollar lately to leap ahead against every European currency; last week it traded for 2.67 German marks, the highest value in more than a year. Finally, the political alliance that OPEC is trying to forge with Third World countries is already showing signs of strain because of towering oil prices.

Time to Work. In Washington, meanwhile, the White House and Congress were working on an arrangement that both sides hoped would lead to long-overdue agreement on national energy policy. Besides unfurling a hotly controversial program to finance energy research and development (see following story), the President agreed to restoration of price controls on domestically produced oil until mid-November in order to give Congress time to work out a price program acceptable to the Administration. Legislation reimposing the controls immediately zipped through Congress (in the House by a vote of 342 to 16 and in the Senate by 75 to 5). The old regulations, which held the price of two-thirds of U.S.-produced oil to $5.25 per bbl., expired Aug. 31.

The step removes the immediate threat that oil companies would lift the price of their products suddenly and sharply. But it still leaves Congress and the Administration at odds over how best to cut oil consumption, boost domestic production, and make the U.S. less dependent on foreign crude. To accomplish these goals, the Administration favors a gradual increase in prices to be achieved by phased decontrol. The Democratic majority in Congress, stressing the inflationary dangers of letting oil prices rise, prefers to put greater emphasis on import quotas and allocation programs.

The Senate passed legislation last April barring increases in the price of most U.S.-produced oil. Last week the House, by a vote of 255 to 148, approved an omnibus energy bill that would cut back on oil prices. The measure would put a lid of $7.50 per bbl. on the one-third of U.S.-produced oil that has not been price-controlled and now sells for about $13.50 per bbl. The $5.25 ceiling on the rest of domestic oil would be continued. The President, however, would be empowered to set prices at up to $10 per bbl. for hard-to-get oil, such as the crude found north of the Arctic Circle.

The House and Senate must work out the differences in their bills and present a program to the President before the Nov. 15 deadline. But unless the price provisions are drastically altered, the new measure faces almost certain veto by Ford. That would leave the nation again facing abrupt decontrol and zooming prices for oil despite OPEC'S restraint.

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