What Price OPEC Unity?

A small oil boost or none--eventually

As they begin to gather at a beach resort near Caracas, Venezuela, to set the world price of oil for 1978, the members of the Organization of Petroleum Exporting Countries are so deeply divided that it is not certain they can make a decision this week. Doubtless they will eventually erect a fac,ade of unity, probably by agreeing on no price increase at all or a small one of 5% or less. The question is when. Last week Kuwait suggested postponing the meeting, possibly until April, to give OPEC diplomats time to heal the breach. At week's end, however, the meeting was still scheduled to begin the following Tuesday. But delegates were considering a proposal that in order to avoid an open break they talk about everything except prices. That, of course, would have amounted to a de facto freeze, giving oil-burning industrial countries a respite for probably three to six months.

At one extreme, OPEC's price hawks, Algeria, Iraq and Libya, are pushing for an increase of 15% to 23%. Their argument: world inflation and the sharp decline in the value of the U.S. dollars in which oil prices are quoted (see ECONOMY & BUSINESS) make such a boost necessary. But increases of that size would undoubtedly plunge Western industrial economies back into recession. Mindful of that threat, Saudi Arabia, the world's biggest oil exporter, is once again committed to a one-year price freeze.

This time it has picked up a wholly unexpected ally: Iran, which at past OPEC meetings had incurred the wrath of the Saudis by arguing for big price boosts. During his visit to the U.S. in November, Shah Mohammed Reza Pahlavi promised a grateful Jimmy Carter that Iran would vote, at least initially, for no price boost. Explained his Premier, Jamshid Amouzegar, "We are tired of being called hawks."

The real reasons, of course, are different. The Shah is negotiating for huge purchases of weapons in the West, is under heavy fire for alleged human rights violations, and is having domestic economic-development difficulties--all of which make him eager to avoid a fight with Western leaders. On the other hand, Iran is clearly in no mood to fight hard within OPEC for a freeze, either. Before the Shah's visit, Amouzegar said that the Iranian delegates would be instructed to go along with whatever the OPEC majority decided.

That leaves a group of eight uncomfortable fence sitters, prominent among them host Venezuela. Most of the undecided states tend to favor modest price increases of 3% to 5% to offset partly the decline in the dollar. Venezuela has become the prime target of pressure from American diplomats who are trying to promote a freeze and believe that Venezuela's influence may be decisive. Says one State Department official: "Now the pressure is on the latinos. The little Arabs aren't much to worry about. Countries like Indonesia are a giggle [Indonesia in the past has voted for big OPEC price boosts, then posted smaller increases on its own crude]. Now the key one to watch is Venezuela." Americans fear, however, that their arguments that Western economies cannot afford a price boost make little impression on Venezuela, where the U.S. is still viewed as that omnipotent Yankee Colossus of the North.

On one matter all 13 OPEC members agree: there must not be another outright rupture such as the one that developed at the cartel's meeting in Qatar a year ago. At that time, eleven OPEC members voted for a two-stage 1977 increase totaling 15.4%. The Saudis and United Arab Emirates responded by posting only a 5% boost, and the Saudis lifted self-imposed production limits to ensure adequate supplies of relatively cheap crude. The two sides compromised in June on a 10% increase--but by then production had risen sufficiently to produce an oversupply of oil on world markets that still continues, and has led to some quiet discounting from official prices.

That market weakness is the biggest force working in favor of the Saudi-Iranian proposal for a freeze. Certainly the hawks could not make a big increase stick. But whenever OPEC decides to decide, the Saudis may yield in the name of cartel unity and go along with a modest boost--which might again be shaved in the market. Whatever and whenever the outcome, Western oil buyers can take heart from the obvious fact that OPEC is suffering the dissension that historically develops in all cartels.

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