Oil Nationalism Fades 20 Years After Crisis
YOM KIPPUR begins this evening. Twenty years ago on this Jewish day of atonement, Egyptian forces crossed the Suez Canal to launch a war against Israel. That event prompted a world oil crisis. The Organization of Petroleum Exporting Countries (OPEC) nearly quadrupled the price of oil, pushing most industrial nations into a deep recession.Skip to next paragraph
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The international oil scene is far different today. When OPEC ministers meet in Vienna tomorrow, their main goal will be to stabilize prices - not raise them.
``In the last month or two they have taken a big hit on prices, which has hurt their national interests,'' notes Daniel Yergin, the Pulizer Prize-winning author of ``The Prize: The Epic Quest for Oil, Money and Power'' and president of Cambridge Energy Research Associates (CERA). ``They probably will rejigger their [production] quotas to support the price.''
For a decade or so after the oil crisis, hundreds of journalists crowded OPEC meetings in a setting of tight security. ``It was a true zoo,'' recalls a frequent observer. Today, the gatherings of the 12-nation body attract a small group of mostly wire service reporters and specialized energy press.
Oil remains a strategic commodity, vital to the world economy and thus a crucial element in the global balance of power. But, as Mr. Yergin notes in an article written with CERA managing director Joseph Stanislaw for the latest issue of Foreign Affairs, oil nationalism has been on the wane.
``Today, economics is taking precedence over politics,'' they write. ``Many exporting countries court the international oil companies that they once shunned. In fact, the door that was slammed shut in the 1970s is being reopened. With the prospect of the opening of the petroleum reserves in Russia and many other countries that up to now have been politically inaccessible, oil is truly a global business for the first time since the barricades went up with the Bolshevik Revolution.''
In the 1970s, there was much talk of a ``new international economic order'' that would shift wealth and power from the rich industrial nations to the poor developing countries. Since then, many developing countries have made great economic progress - but not through the arm-twisting methods envisioned by some third-world leaders in those earlier days.
``The oil exporters learned that they needed the importers as much as the importers needed them,'' Mr. Stanislaw and Yergin write. ``The producers may have had oil to sell, but the consumers provided the markets. They could also provide, when needed, security.'' The prime security example: the Gulf war.
Yergin expects the OPEC ministers in Vienna to set fourth-quarter production quotas for its members totaling 24.5 million to 24.7 million barrels per day (bpd). That's about the same production as this summer, though the third-quarter quota was 23.6 million bpd. But colder weather will boost demand for oil. Today's price for Saudi Arabian light crude of around $14 a barrel is down from $18 a year ago. Therefore Japan with its strong yen is paying no more for oil in real terms than it was in pre-crisis 1973.
Iraq remains one big threat to oil prices. The ban on its oil exports since the Gulf war has cost Iraq $40 billion so far, Yergin says. ``Iraq is trying real hard to find a way back into the oil market,'' he adds. However, it has not persuaded the United Nations to ease conditions for lifting the ban. If the UN does give the go-ahead, Iraq could right away produce 1.6 million bpd.
The other OPEC producers would somehow have to accommodate the extra oil output. In 1986, Saudi Arabia stopped other OPEC members from cheating on their quotas by flooding the market with oil and forcing down the price drastically. The cheaters soon were begging for Saudi restraint and agreed to more realistic production levels. This time, Saudi King Fahd has not applied the same discipline to OPEC producers.
Another key consideration for OPEC ministers will be Russian oil production. It has declined in five years from 11.5 million bpd to 7 million bpd. Yergin says he is ``a little more optimistic than the conventional wisdom'' that Russia will integrate its oil industry into the world market. But at the moment, he notes, Russia does not have a government capable of making decisions on the foreign investment that would revive domestic oil production.