Oil cartel's dilemma: self-discipline, and cooperation of non-OPEC states
Two crucial questions emerged for OPEC as the 13-nation oil cartel ended its ministerial meeting here, with implications for everyone in the world who uses oil or sells it.Skip to next paragraph
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1. Unity: Will political divisions and a growing shortage of revenue bring to an end OPEC's self-discipline of holding down production in order to keep prices firm at a time of slack world demand?
On the surface, the divisions and the shortages were played down here. In private, a clash between Iran and Iraq prevented the choice of a new OPEC secretary general to replace outgoing Marc Nan Nguema of Gabon.
2. Non-OPEC oil: Can OPEC hammer out strategies to gain the cooperation of non-OPEC producers (the Soviet Union, Mexico, and Britain chief among them) to keep their exports within the limits OPEC desires?
The issue is vital since the share of world oil sales commanded by the Organization of Petroleum Exporting Countries has dropped from 62 percent in 1973 to 32 percent earlier this year. Today, OPEC's share has risen to about 38. 6 percent (about 17 million barrels per day out of a world demand of 44 barrels per day).
OPEC ministers see the need. At the end of the Helsinki meeting July 19, conference chairman Mana Saeed Otaiba, minister of petroleum and mineral resources of the United Arab Emirates, said that OPEC's long-term strategy committee would take a new look at relations with non-OPEC producers.
The committee, headed by Saudi Oil Minister Sheikh Ahmad Zaki Yamani, is to report to the next scheduled OPEC meeting in Geneva Dec. 7.
OPEC itself professes to be confident. It has agreed to hold its 17.5 million barrels per day output ceiling through the end of September, as well as prices and individual country quotas.
The OPEC monitoring committee (the United Arab Emirates, Algeria, Venezuela, and Indonesia) will meet Sept. 25 to review the need for a higher ceiling and quotas.
Despite the smiles of Dr. Otaiba, and of Indonesian Minister of Mines and Energy Subroto, problems lie ahead.
The world oil market is increasingly complex. Political conflicts run deep - between Iran and Iraq, for instance. Non-Arab countries remain deep in international debt and in need of funds for internal development.
Indonesia, Venezuela, and Nigeria have approached the International Monetary Fund for loans. Nigeria has an election in August and refused here to increase the price of its high-quality oil by 50 cents a barrel to restore a wider differential with Arab light crude oil.
Nigeria did, however, agree to reduce production slightly to come down to its assigned quota of 1.3 million b.p.d.
The temptation for poorer members to offer a series of discounting deals under the table is high. According to Venezuelan Oil Minister Humberto Calderon Berti in Paris recently, some members are already making ''minor'' sales on the spot (noncontract) market below official prices.
He was believed to have been referring to Iran and Iraq, both needing funds to finance their war against each other.
In addition, several other ways of unofficial discounting are available, points out Louis Turner, researcher with the British Institute's joint energy policy program and also at the London Business School.
In a study for the Royal Institute of International Affairs at London's Chatham House, Mr. Turner lists price discounts, extended credit terms, and barter deals, among others.
Such possibilities make the work of the monitoring committee more difficult, Mr. Turner believes.
OPEC must be careful not to set any new ceiling after September too much higher than world demand. If it does, and if OPEC members compete hard against each other for the demand that still exists, oil companies may think prices will fall again, and use up inventories rather than buy new oil.
Meanwhile, OPEC is adopting various strategies toward non-OPEC members.
It is sending emissaries: the Algerian energy minister went to Moscow recently and OPEC is keeping regular contacts with Britain and with Mexico, whose deputy oil minister held informal talks on the edges of the Helsinki meeting. OPEC could, Mr. Turner believes, threaten to cut prices to a point where North Sea production would be uneconomic, but that would not only lose revenue but cause protectionist replies in Europe, Japan, and North America as they tried to protect their coal and natural gas industries.