An American economist's plan for breaking the OPEC oil cartel
Cambridge, Mass. — Oil economist Morris A. Adelman has some ideas on how to break up the OPEC cartel. ''But it involves open resistance to the cartel, which any government in Washington would be loath to undertake,'' says the Massachusetts Institute of Technology professor. ''Nobody has the stomach for any resistance.''
Nor would the oil industry like his suggestions, since these could well prompt a drop in the price of crude.
But it would not be the first time this well-known oil expert was unpopular in oil circles. More than a decade ago, he recalls, the price of oil was supported by another type of cartel. The Texas Railroad Commission limited the production of oil in the Lone Star State; Louisiana went along with production limits; and oil import quotas prevented a flood of cheap foreign oil from depressing the relatively high American price level.
Mr. Adelman's criticism of this system during a speech prompted John B. Connally, governor of Texas from 1963 to 1969, to denounce him by name. ''I was kind of pleased,'' Adelman said in an interview here.
Today, the OPEC nations support the price of oil by limiting their own production of crude.
Professor Adelman has three trust-busting suggestions for the federal government:
* Impose a stiff tariff on imported oil. This would not only raise needed government revenues. It would push prices up to a level that would continue to discourage consumption and make it more difficult for the OPEC nations to agree on oil-production quotas.
There is an ''open question'' of whether the price of oil is already too high for the good of the cartel, Adelman notes. By raising the domestic price with a tariff, the United States would get the revenue and foreclose the possibility of OPEC countries boosting the price further.
* Sell import permits to nations or oil companies at a monthly auction on the basis of anonymous bids. Such a system, Adelman figures, would promote dissension in the ranks of the OPEC members. They would not be able to tell whether someone had cheated by buying more oil permits than its OPEC-set quota allowed. ''Given the present market conditions, you might break up OPEC once and for all.''
But, he admits, such a system would have its problems. ''I don't think the British would like it, and the Venezuelans would be outraged. But the ones it would hurt the most are the Saudis.''
This suggestion was included in the early 1976 report of President-elect Carter's Task Force on Economic Policy. But President Carter, trying to make friends with the Arab nations, did not adopt it.
* Build up the strategic petroleum reserves to about 1 billion barrels and decide on a procedure for using it.
''There is a padlock on the reserves right now,'' says Adelman. By that, he means there are no provisions to get the crude out of the reserve in an emergency, and thus industry has no assurance that it will be available. ''We need it ready for use in 14 hours.''
In fact, the MIT economist suggests the government offer to sell the oil at any time at current prices, plus a handling fee.
''That way there is no reason for anybody to be nervous about their supply of oil - and you have no price explosion,'' Adelman said. He figures there were only small gaps between the supply and actual consumption of oil during the 1973 and '79 oil crises. Indeed, in the latter year there may have been no gap at all , and ''at the most'' only 5 percent of total consumption. Fear prompted an enormous increase in demand, however, as nations and consumers of oil sought to protect themselves from energy shortages. This permitted OPEC to get away with its price increases without even agreeing on production restraints.
Mr. Adelman thinks it quite possible that the world oil market could face another such mild shortage. ''It is an utterly unstable market as far ahead as I can see,'' he says. But he figures the current petroleum reserves of 350 million barrels is adequate for dealing with similar disruptions of Middle East oil or other major oil suppliers - if access is quickly available.
To guard against ''a big improbable cataclysm'' - such as the Soviet Union moving into the Persian Gulf and blocking all supplies from that area - the reserves should be boosted to 1 billion barrels, he says.
He considers it ''prime stupidity'' that the government has not created such a reserve. ''When you consider the amount of damage it could prevent, this is a mighty good buy as insurance.''
Adelman's anticartel program is based on the assumption that the OPEC nations need Western food, manufactured goods, and technical expertise more than the West needs its oil. ''They would perish very quickly without these. So they will produce that amount of oil which produces the amount of revenue they need. The superstition is that they want to keep their oil in the ground because they have limited desires. But there is no real limit in their needs.''
That was proved, he contends, when the OPEC petrodollar surplus dropped from 82, only two years later. ''For people who didn't want the money, they have learned how to use it very fast.''
If Adelman's program were adopted in Washington, the world would watch in trepidation as the United States and OPEC shot it out in an economic duel.