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Breaking OPEC is not the answer!

By M. S. DaoudiM. S. Daoudi, co-author of ''Economic Sanctions: Ideals and Experience,'' recently completed a study on the longevity of OPEC. / February 17, 1984



Ever since OPEC burst on the international scene in the mid-'70s, the question most anxiously raised in Western circles has been how to break this ''cartel.'' In their obsession with the idea of breaking OPEC, many policymakers and scholars have tended to overlook the more urgent question of where the world's economic interests really lie - in a demolished OPEC or in a cooperative consumer-producer agreement?

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Perhaps there might be some short-term benefit for industrial nations in the collapse of the 13-member oil-producing organization. But this would be a Pyrrhic victory, since it carries with it long-range threats of supply disruptions, economic chaos, and the prospects of a continued, crippling seesawing in energy prices.

No doubt, breaking OPEC would neither end cartelization in the oil industry nor bring back low prices, since history teaches that no sooner is one broken than another emerges. The collapse of one oil cartel in 1911 gave rise to another in 1928. No sooner was it dispersed in 1933, however, than another, more powerful cartel emerged; it lasted till 1973, when OPEC, the Organization of Petroleum Exporting Countries, took charge.

Far from ending the industrial nations' torment, OPEC's demise would likely create a new, more dangerous situation for world peace, as it would lead to greater influence in the field of energy for the world's largest oil producer - the Soviet Union. It would cause more regimentation in Western communities and give more power to radical forces in the third world.

OPEC's demise would cause a massive drop in revenues of all its members and simultaneously reduce the flow of petrodollars into the world's monetary system. It would compromise the development programs of OPEC nations, leading to a decrease in industrial nations' exports to their client oil-producing nations.

As OPEC's collapse is not the West's gain, neither are OPEC's predicaments at the heart of the third world's interest. Once OPEC were broken, the chance of restructuring the world economy to accommodate the needs of poor nations would disappear, as would the North-South dialogue and its potential for establishing a new international economic order. OPEC's end would bring back the economic dependency of underdeveloped and developing nations on the West. Or on the Soviet Union, which is always willing to exchange economic interest for political advantage - a prospect that is far from being in the best interest of the Western alliance or the third world.

OPEC's collapse could lead to the bankruptcy of its members and would have two implications for the non-oil-producing nations of the third world. First, it would put an end to OPEC's financial aid to poor nations. For quite some time now, OPEC has been helping the less-developed countries (LDCs) meet the burdens of inflation and the worldwide economic depression. It did so by extending credits to them, by contributing vast amounts to the International Monetary Fund's oil facility, and by giving direct aid to investments in the third world. In 1976, OPEC countries ranked in the top six among all donor countries of the world as regards proportion of aid to gross national product and the first four ranks for per capita disbursements. By 1979 the total resources of OPEC's special fund to LDCs reached $2.4 billion.

Second, should OPEC members experience huge losses of export revenues, they would be obliged to turn to borrowing. This carries profound implications for poor nations and for countries heavily in debt, such as Brazil and Mexico. Brazil owes more than $93 billion in foreign debts, while Mexico's debt amounts to nearly $90 billion. Such countries are now experiencing serious difficulties in meeting their loan obligations and making overdue interest payments. Other major borrowers such as Argentina, Venezuela, and Chile are already finding the banks reluctant to lend to them.

Rather than blaming OPEC for their self-inflicted woes, the industrial nations should start working toward creating a suitable structural adjustment that would take into consideration the mutual interests of both consumers and producers.

The answer does not lie in plans to break OPEC but in policies that would make it possible, in the words of an Arab proverb, to eat the grapes from the vineyard without having to kill the watchman.

It is true that reconciling competing interests would be very difficult. But most essential at the moment is to take a firm step in this direction. Rather than continuing to emphasize the negative approach focusing on destruction, it is now time to adopt a more positive stance stressing constructive cooperation.