The squeeze tightens on Arab petrodollars

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.

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.

As that grows more and more likely, economists such as Mr. Seymour say all or part of OPEC must cut prices.

''Even if OPEC rapprochement along these lines does not materialize,'' Mr. Seymour says, ''action on prices by Saudi Arabia and the Gulf states, alone if necessary, should not be too long delayed. Otherwise what is eroded by market forces could turn out to be no longer recuperable.''

Even if oil prices drop precipitiously, some economists believe, the wealthier Middle East oil countries will be sheltered from the ensuing revenue squeeze by their huge financial reserves and by shutting off discretionary spending.

''The Saudis are quite capable of coping,''says a source well versed in the Saudi economy. ''I have no doubt they will draw down their (financial) reserves. Their development budget is inflated and they are spending nowhere near the maximum. And there is an agrument that says the Saudis would like to discipline their economy. King Fahd could simply explain that austerity was needed.''

Drawing down some of the estimated $150 billion the Saudis have in reserve might hurt Western banks, this economist observes, ''but the West would benefit overall if oil prices drop and this stimulates economic recovery.''

Skeptics, however, argue that Arab states dependent on oil revenue would not have an easy time coping. In Saudi Arabia, Egypt, and the Gulf states, they say, special-interest groups arose in the moneyed 1970s, and they will continue to pressure the government to spend in their favor. Just as the Reagan administration finds tough going with interest groups as it attempts to hold down the government budget, the Saudis may find it quite difficult to backtrack on the $91 billion fiscal 1982-83 budget next year and the year after.

In the Middle East, these interest groups are much more troublesome than in Western nations. They have the potential for venting their displeasure through hostile action. These groups include the military (especially in Saudi Arabia), the socialized sectors of Arab economies (especially in Egypt), Shia Muslim minorities (Saudi Arabia, Kuwait, Iraq, the United Arab Emirates), and demanding , dangerous neighbors such as Syria and Iraq (subvented by the Saudis and Kuwaitis, primarily).

According to economists, this may be the country-by-country scenario in the oil-rich, revenue-poor future:

* Egypt: grave economic problems which could worsen rapidly, causing social instability.

* Saudi Arabia and the Gulf states: ablility to survive in the short run, but will have to live more prudently in the long term.

* Iraq: facing serious problems; may not be able to continue to finance its war with Iran or keep its population happy - and certainly not both at once as it has the past 2 1/2 years.

* Iran and Libya: difficulties likely, but probably will use harsh measures to restrict the spending of their citizens; decreasing revenues may curtail revolutionary goals.

* Syria, Lebanon, Jordan: some initial dislocation due to loss of worker income earned in neighboring oil countries; Lebanon and Jordan especially able, however, to use human resources to recover quickly.

* Israel: benefits from lower energy costs and may be able to rein in hyperinflation; reaps political bonanza from Arabs' loss of oil clout.

''OPEC was considered strong,'' Dr. Kanovsky says, ''because producers did not need the money and could adjust the oil tap at will. But they are only human , and like anyone else, when income increased, spending increased, and in a sense they became hooked.''

Next: Egypt's political stability at stake.