OPEC rises again, but no swagger
In the '70s, the world trembled at its oil muscle. Yesterday, Saudis vowed to lift oil output, let prices fall.
AMMAN, JORDAN — Americans may be forgiven a sense of dj vu.
With gasoline prices rising faster than dotcom stocks, many may recall the twin oil crises of the 1970s, when Arab members of the Organization of Petroleum Exporting Countries (OPEC) flexed newfound geopolitical muscles. Deserts bloomed with new cities, and the hands of Persian Gulf leaders rested easily on the spigots of liquid wealth.
Oil prices have tripled in the past year and are again comfortably over the $30 per barrel mark. Members of Congress are complaining that oil-exporting countries are raking in "obscene" profits.
But the mood here is different this time: The windfall is being greeted with relief among oil producers that a debilitating, unaccustomed recession for them may soon be over. It's providing a boost to leaders in power - from Iraqi leader Saddam Hussein to Iran's pro-democracy reformer Mohammad Khatami. But instead of renewed political swagger on the global stage, there are signs of mutual East-West interest in more-stable prices.
"Everybody is celebrating this rise, because there was so much panic [when prices were at $10 per barrel a year ago]," says Mohammed Abduljabbar, with the Washington-based Petroleum Finance Company in Oman. "But it's not a celebration of 'Go out and spend all the money you can,' because they know [the high price] is a temporary situation. It's a relief from the panic."
Some OPEC nations such as Libya and Algeria say they aren't ready to boost oil supplies substantially. But Saudi Arabia, the world's largest petroleum producer, told Reuters yesterday that it will respond to the world's need for "lots" more oil in order to reduce prices. Based on such signals, prices slipped back this week from the $34 mark. OPEC members will meet on March 27 in Vienna to set higher production levels. America is still the world's largest oil consumer, and it depends on Mideast oil for some 40 percent of its energy needs. Energy Secretary Bill Richardson recently made a whirlwind tour to pressure OPEC leaders to increase production.
Still, the US estimates that the jump in oil prices will yield a 59 percent surge, on average, in oil revenue for OPEC members this year.
Senator Charles Grassley (R) of Iowa called such profits "obscene," and introduced a bill to cut aid and arms sales to OPEC members. But in the Mideast - where crises for half a century have often centered on oil and Western access to it - the word "obscene" does not apply.
"That is the wrong impression, and it is not fair," says Amer al-Tameemi, chairman of the Kuwait Economic Society in Kuwait City. "It's true that some money is used to buy military hardware - this is going to happen as long as you have people like Saddam Hussein around. But some is spent on infrastructure. I don't know why they would call that 'obscene.' "
All major construction projects in Kuwait, for example, were suspended over the past two years for lack of cash, he says. Kuwaiti leaders last week promised to rebuild the Future Generation Fund - a cash reserve begun in 1976 that peaked before the Gulf War at $90 billion but today is less than half that.
In Saudi Arabia, with 26 percent of proven global reserves - cradle-to-grave welfare programs have been reexamined and services have been cut back.
In Iraq, more proceeds from oil should mean more humanitarian aid for ordinary citizens under the oil-for-food scheme meant to lessen the human impact of stringent United Nations sanctions.
And in Iran, the boost in revenues is likely to help reverse years of economic stagnation and help newly elected political reformers consolidate power.
"This is good news for [reform] President Mohammad Khatami," says Heydar Pourian, editor in chief of Iran Economics magazine in Tehran. "The reformers will have more breathing space."
Across the region, in fact, in the generation since the first oil shock rocked the West, analysts say there is a new sense of mutual need between supplier and consumer.
Led by Saudi Arabia, oil-producing countries last year cut production to boost the flagging oil price - though no one expected that a 5.5 percent cut would spark a 300 percent price rise.
Likewise, last week even price-hawk Iran - thanks in part to a budding rapprochement with Saudi Arabia - fell into line with US and other OPEC-member wishes by admitting the need now to lower prices.
"[Oil producers] are incredibly cautious," says a Western economics writer based in Dubai. "The catastrophic low prices of 1998 still make them feel very vulnerable and not quite king of the castle."
"There is no disillusion that prices could drop to where they were if they mishandle the situation, so there is no sense that they are strutting about as the OPEC kings did in the 1970s," he says. "When Tom Brokaw talks about oil on the nightly news, it moves it into a different zone of pressure. Oil ministers are nervous because they realize they have no choice but to increase output, because of the increase in American demand. They know they can't say no."
Part of the problem is the psychology of oil, which is a commodity that behaves like no other. American strategists dreamed for years of having a military presence in the Persian Gulf for just that reason - to guarantee a steady supply - and since the US-led coalition ousted Iraqi troops from Kuwait in 1991, some 20,000 American troops have stayed on.
The cost has been high: The troops have been easy targets for anti-American sentiment from Tehran to Tripoli. But threats have also meant billions in military spending by Gulf states with little capacity to absorb the high-tech weaponry.
Still, the new oil revenue has given the United Arab Emirates enough confidence to announce on March 5 a massive $6.8 billion deal for 80 new F-16 fighter aircraft from Lockheed Martin Corp., the Pentagon's No.1 supplier. Goodies will make this version better than any F-16s flown by US pilots.
But in most other countries military spending has given way to new thinking about oil-based economies.
"They are brainstorming all across the Gulf to find ways to diversify, so that real progress won't stop," says Khaled al-Maeena, editor of the English-language Arab News in Jeddah, Saudi Arabia.
"Expectations and the mood of the people is different now" than in the 1970s, he says. "We have gone through rough patches and wars and feel that all around people are progressing, so we have to run to catch up. The focus is now on partnership - this is more important than [being able to snub] the West."
"Foreign investors were always seen as a nightmare in our region," says Basher Bakheet, of Bakheet Financial Advisors in Riyadh, Saudi Arabia. "Now that has totally changed. If someone is willing to risk his capital, we should give him the red carpet."
That may be good news for American drivers, who don't relish long gas lines during the upcoming "motoring season."
"Everyone is wiser now, and OPEC knows very well that this balance they have managed to achieve is very precarious," says an Arab economist in Abu Dhabi. "This is not like the 1970s. The consumer has the upper hand in the market."
(c) Copyright 2000. The Christian Science Publishing Society