Remember OPEC? Once, the young lions of the Organization of Petroleum Exporting Countries would roar, cut production, and waiting lines for gasoline snaked around the block. Inflation hit double digits. And the world's superpowers trembled. Ask one-term President Jimmy Carter about OPEC's clout.
Today, the oil cartel is described with words like "nonfunctioning," "ineffective," and "toothless," by industry analysts. With the world getting its energy from an ever-increasing variety of non-OPEC sources, from Canada to Kazakstan, OPEC can no longer call the shots and name its price.
Infighting exacerbates the cartel's weakness, with some members ignoring quotas, and others carrying out feuds in public.
"OPEC is more of a debating society and less of a cartel," says Ken Haley, manager of energy forecasting at Chevron Corp. in San Francisco. "They are not the cartel of 1973 and '74, when they could unilaterally set the price of oil. The world doesn't work that way anymore."
The change from a cartel-led market to a free market has enormous political and strategic ramifications, altering the way nation's around the world determine their strategic interests.
To be sure, many analysts note that OPEC is "down, but not out," and attention is now focusing on a March 30 meeting. But there's no question the oil cartel has gone through a profound change since its glory days.
Forty percent of the world's energy in 1996 came from three distinctly non-OPEC nations: the United States, Russia, and China. In addition, new technology is helping other non-OPEC competitors to develop long-dormant oil fields, from the Caspian Sea to the Congo to the Falkland Islands (yes, Mrs. Thatcher, those Falklands).
The short-term result of all this drilling and pumping has been a veritable buyer's market for oil, with West Texas Intermediate selling at $12.90, the lowest price in 10 years. And the trend seems certain to last for some time.
"Unless OPEC takes action, and cuts production, it is likely we will see another drop in the price of oil to single digits," says Mohammad Abduljabbar, a senior economist at Petroleum Finance Co. in Washington.
"The market will respond eventually [and force production cuts], but it could take much longer, maybe a year or 18 months" to bring oil prices back up to profitable levels for oil producers.
Certainly OPEC does not deserve all the blame - or praise - from consumers for the drop in oil prices. But Mr. Abduljabbar says internal divisions are exacerbating the problem. "By carrying their fight into the public, they end up talking down the price of oil," he says. "In my opinion, this is stupidity."
Indeed, for the struggling members of OPEC, the glut couldn't have come at a worse time. Many members desperately need to update their equipment and keep pace with lower-cost producers. But as profit margins keep declining, some nations may have to put off maintenance work even longer.
THE exception to this rule is Venezuela, which reversed its ban on foreign investment two years ago and opened its oil industry to the free market. By doing so, Venezuela received new technologies, such as three-dimensional seismic imaging and special thermal pipelines, cut production costs, and created thousands of new jobs.
Seeing these swift results, other oil-producing nations, including Nigeria, Algeria, and the Philippines, seem to be adopting the Venezuelan model as well.
But this strategy is not without controversy. Saudi Arabia, in particular, sees Venezuela's actions as a betrayal of OPEC quotas agreed to last November.
"We do not want to reduce production to find out that other countries, especially those which do not adhere to quotas, are flooding the market and taking our valuable customers," said Saudi oil minister Ali al-Naimi recently.
This concern is not limited to economics. Low oil prices could have powerful political effects on Persian Gulf nations that derive as much as 80 percent of their budget from oil revenues. This year, Saudi Arabia plans to cut its budget almost 10 percent. With a population comprising disparate tribes, such a budget shortfall could prove explosive.
"This will affect the government's ability to buy political allegiances within Saudi Arabia," says David Wihbey, adjunct fellow at the American Enterprise Institute in Washington. "As the money shrinks, it becomes harder and harder to distribute the goods to the tribes, and this has the potential to create some serious instability in the Gulf."
Here in the US, the era of $12- and $13-per-barrel oil is starting to hit hard at marginal, small-time producers, such as a farmer with an individual well that produces fewer than 10 barrels a day. (By contrast, the average Gulf oil well produces 10,000 barrels a day.)
The glut even has some large companies, such as Unocal and Amerada Hess Corp., looking at ways to cut their capital-expenditure budgets for 1998.
For the bickering members of OPEC, too, there are likely to be some fallow years ahead. But some analysts say the hard times are destined to end.
"In the longer term, over the next five years, the need for OPEC crude will continue to rise," says Mr. Haley of Chevron. The Middle East accounts for two-thirds of the world's known oil reserves - 678 billion out of 1,020 billion barrels. OPEC's total share is even more impressive: 797 billion barrels. "That's where the action is," he says.