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World's slippery path to cheap oil

By David K. WillisStaff correspondent of The Christian Science Monitor / January 28, 1983



Vienna

The likelihood of cheaper oil for the world has rich and poor nations wrestling with a basic question: Would lower oil prices be good - or bad?

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At the moment, a number of conflicting answers reverberate in finance ministries, bank board rooms, oil company skyscrapers, and corporate headquarters.

No one yet knows how fast world oil prices may slide in the wake of OPEC's failure this week to set production quotas for its member states. Nor can it be said yet how steep a slide might be during a period of world oil glut and low demand.

The only point of agreement seems to be that a small drop in oil prices will bring a mixed bag of implications - and that a sharp fall will make the bag even more mixed.

''The key indicator to watch is the spot price, because it is the only public indication of what contract prices are doing under the table,'' says one OPEC source. Those prices have been falling, but not sharply, since OPEC's Geneva meeting.

Answers are made difficult to reach because some are concerned about the short term, and others about the long term:

* ''We want cheap oil,'' proclaims a headline in the respected British magazine the Economist. The weekly sees cheaper oil helping rich nations to fight inflation, to put idle factories back to work, to force banks into correcting unwise lending policies in recent years, and to raise living standards in non-OPEC countries.

* ''Cheap oil means less revenue for OPEC, less OPEC buying power from the richer nations, less grants and loans from OPEC to the developing world, and a reversion to the world of the 1960s, where the gap between 'have' and 'have-not' nations grows instead of diminishes,'' says Dr. Awni S. al-Ani of Iraq, assistant director general of the OPEC Fund for International Development in an interview here.

Adds a source at the Vienna headquarters of OPEC (Organization of Petroleum Exporting Countries):

''A sharp drop will also turn the United States and other countries away from working on wind, wave, solar, geothermal, and other non-oil energy sources. It will make the industrial world dependent on oil again, and leave it vulnerable to another surge in prices later on.''

One point of clarity is that finding answers is urgent for reasons that stretch far beyond the price of running a car or heating a home.

They include not only success in the fight against recession, the pace of future development across the ''have-not'' countries, oil company profits, and the cohesiveness of the world banking system, but other issues as well. For instance, whether the Soviet Union (the world's biggest producer and second-largest exporter of oil) can continue to benefit by selling its oil abroad at high prices.

Needed now, analysts in Vienna and London agree, is new insight and flexibility from diplomats, the oil world, and the global financial community alike in a period of uncertainty and apprehension.

What follows is a look at the basic question from the different points of view.

* Consumers in the US, Western Europe, and Japan:

Cheaper oil should mean lower gasoline prices and smaller home-heating bills, at least in the short term.

Governments, especially in Europe, will try to keep gasoline taxes high, however, because they need the revenue.

In Britain, for instance, a gallon of gasoline selling for $2.63 ($:1.7) contains taxes totaling almost $1.55 ($:1). At least two major oil companies now want to add at least $:0.6 to each gallon despite falling prices. They say they need to recoup past losses.

* Governments in these same countries:

Cheaper oil means smaller energy import bills. At a time of recession, that is a definite gain.

The Paris-based OECD (Organization for Economic Cooperation and Development) estimates that across its range of ''have'' member states, a 10 percent fall in oil prices might push general consumer prices down 1.5 percent over two years.