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The squeeze tightens on Arab petrodollars

By Staff correspondent of The Christian Science Monitor / February 2, 1983

Nicosia, Cyprus

The legendary avalanche of oil money in the Middle East is thinning out . . . and Arab oil countries are in trouble. With a surplus of world oil showing no signs of decreasing - in fact, expected to continue and perhaps expand in the foreseeable future - the Middle East is going through a sobering economic change. And the ramifications for the global flow of ''petrodollars'' are far-reaching.

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In the short term, Middle East economists in Cairo, Tel Aviv, and Nicosia have told The Christian Science Monitor, oil countries will have to agree to price cuts, with the attendant loss of revenue. The Organization of Petroleum Exporting Countries (OPEC) - or the Saudi-led Arab bloc within it - is virtually certain to cut the per-barrel price of oil from $34 to $30 in the near future.

Meanwhile, oil countries such as Saudi Arabia will have to begin drawing down their financial reserves to meet the demands of their ambitious development and aid programs. This, in turn, will mean that European and American banks, to which these cash reserves are tied, may soon feel the pinch as money flows out of their hands and back to the Middle East.

In the middle term, these economists say, the oil-rich countries will have to quit the high-spending ways for which they have become famous, cut back funding for domestic programs, slow aid to the third world - but perhaps be stuck with using dearer and dearer petrodollars to attempt to influence troublesome neighbors, such as Iraq and Syria, through subsidies.

In the long term, if the oil surplus continues and the price spirals downward , the Middle East will undergo a fundamental change. Arab oil states will have to live with less. They may have to return at least part of their vast alien-worker populations to their countries of origin, such as Pakistan and the Philippines. And they may have to face the destabilizing political consequences that belt-tightening can bring.

''The one-crop countries are in serious trouble if that crop is oil,'' Israeli economist Eliyahu Kanovsky says.

''The cold winds of chaos'' are sweeping the oil market, says the low-key Middle East Economic Survey (MEES).

This opinion is shared by American, European, Israeli, and Arab economists in the Middle East. While optimists (in this context) say an OPEC price cut to $30 per barrel will work to stimulate world demand for oil and balance the situation in 12 to 18 months, they still admit that the laws of the marketplace may prevail and prices continue to plummet.

''Rather than risking what everyone fears - a downward spiral - the 'production maximizers' (Iran, Libya, and Nigeria in OPEC; Britain, and Mexico outside OPEC) will sooner or later get things together enough to come in from the cold,'' says Ian Seymour of the Nicosia-based MEES.

''To a certain extent there are marketplace laws'' at work, Mr. Seymour says. ''But knowing this, the 'maximizers' will have second thoughts. This would certainly presuppose Saudi readiness if necessary to take whatever production steps they feel they must.''

For Saudi Arabia, that can only mean standing ready to increase production up to and beyond 6 million barrels per day, for the Saudis need the money and - more important in the short term - need to produce at least that much because of their own energy needs.

''Our problem (is) with electrical power generation and water desalination,'' Saudi Oil Minister Ahmad Zaki Yamani said in an interview published Tuesday. These ''depend on gases produced in association with crude.''

Acknowledging the problems ahead, Sheikh Yamani said the kingdom was concerned with protecting the interests of the international economy and averting any harm that could occur with waves of bankruptcies and unprofitable investments. He admitted that Saudi Arabia was struggling to avert a collapse in oil prices.