Living with OPEC

A prime goal of U.S. oil diplomacy over the past two years has been to break up the Organization of Petroleum Exporting Countries. The U.S. tried to weld consuming countries into a bloc that would reduce oil imports and accelerate development of alternative sources of energy, with the aim of shrinking OPEC revenues enough to prod some of its 13 member nations to cut prices, thus dissolving the cartel. The strategy seemed justified: OPEC's quintupling of prices since late 1973 has aggravated both inflation and recession in industrialized countries. But the attempt simply did not work, and now the policy is being quietly shelved. The U.S. Government has decided that it cannot beat the cartel and that, as a result, it may just as well learn to live with it--perhaps even gain politically from its existence. Assistant Treasury Secretary Gerald Parsky sums up the new mood: "Breaking up OPEC would be detrimental to the direction in which we want to go."

The softening U.S. attitude is prompted by several factors. Early predictions that a massive transfer of wealth to the oil-producing states would cripple the industrial world's financial and production systems have proved unfounded. Most of the newly rich producers have become big spenders, and are creating lush export markets for U.S., European and Japanese goods.

Much of the rapid rise in oil prices has already been absorbed by consumer countries. According to a recent study by the Brookings Institution, even with higher oil prices the growth of disposable income in the developed world will be slowed by only 3% or so between now and 1980.

Then, too, the Administration has been unable to rally Europeans and the Japanese to its anti-OPEC strategy. They are far more dependent on oil imports than the U.S. and are exceedingly reluctant to annoy the producing states.

France has refused even to join the International Energy Agency, which the U.S. hoped would unite consumer nations in a struggle against OPEC pricing policies. Britain, which is pinning its hopes for recovery on North Sea oil, is banking heavily on continuing high crude prices; Prime Minister Harold Wilson says it is "not entirely misplaced humor" that Britain eventually might actually join OPEC. Non-OPEC producers like Canada and Mexico have also benefited from the towering cost of oil and are not about to press for reductions.

Moreover, OPEC has proved remarkably resilient because its members are well aware that their power to fix prices lies in their ability to maintain a united front. Thus cartel members have been able to hold traditional animosities in check--at least so far. Iran and Iraq managed to settle a long-smoldering border dispute, and radical Algeria fell in line behind Saudi Arabia's moderate pricing policies when the Saudis presented Algeria with a generous loan. Un-gluing OPEC, if it could still be done at all, would require extraordinarily disruptive measures by the U.S.; for example, actively fostering friction between such rivals as Iran and Saudi Arabia.

But experts fear that disruptive measures could lead to unpredictable turmoil, especially in the already explosive Middle East. That kind of strategy, says a State Department Middle East specialist, would be "so politically damaging as not to be worth the effort."

Ending Confrontation. Instead of confrontation, the U.S. is now seeking to influence OPEC through accommodation with Saudi Arabia, the cartel's most influential member and biggest producer. The Saudis' avid antiCommunism, their support of Egyptian President Anwar Sadat against more radical Arab leaders and their relatively moderate position on oil pricing make them particularly acceptable to American policymakers. Despite its vast wealth, Saudi Arabia is still essentially a feudal state badly in need of both industrial and agricultural development. In the past year or so, the U.S. has signed agreements to provide the Saudis with military and technical assistance, including electrification projects and agricultural development programs. Says Saudi Information Minister Muhammed Abdo Yamani: "We see signs that make us optimistic about American policy."

The strategy worked last fall, when the Saudis held the latest OPEC price boost to a stated 10%, though some cartel members had wanted much more. Whether OPEC will continue to present even a facade of moderation, however, remains open to question. Iranian Interior Minister Jamshid Amouzegar recently noted that with the expected worldwide economic recovery, new oil price boosts "will become possible again in mid-1976."

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