OPEC on hold

May 28, 1981

The world has won a reprieve on the oil front. Now that OPEC has decided to freeze oil prices until the end of 1981, both the industrialized and the developing nations have time to adjust to the added economic difficulties caused by past sudden leaps in energy costs. Even if the majority of OPEC nations reduce petroleum production by 10 percent, as they have also agreed to do, this would still not be enough to offset the current world oil oversupply. For the time being, therefore, oil consumers can breathe easier.

The pause is welcome and it is Saudi Arabia, of course, that must be thanked for it. OPEC was forced into a price freeze only because the Saudis refused to boost their own prices or cut back production. This was not a matter of altruism but of economic and political self-interest. Saudi Arabia today has enormous investments in the West which need to be protected against economic shocks. It also is concerned about preserving the value of its precious stores of oil. If petroleum prices shoot up precipitately, the oil-importing countries will simply spur their search for alternative sources of energy. This in fact has already happened to some extent, accounting in part for the glut of oil on the world market.

Not to be ignored, either, is the critical importance to Saudi Arabia of maintaining the US defense umbrella in the Gulf region. Few analysts think Sheikh Ahmed Yamani's diplomacy in OPEC is directly linked to his country's request for sophisticated AWACS planes. But Saudi Arabia's continuing moderation on production and pricing of oil certainly does not harm the atmospherics in Congress. From Washington's point of view, the Saudis have been a trustworthy friend.

All this is not to suggest that the West can now relax and forget about such successful energy policies as conservation. Reserves of oil arem limited. Despite President Reagan's earlier optimism about abundant supplies in the United States, for instance, new discoveries of oil are not large enough to increase total production but merely to keep the curve from declining further. A recent study by the Rand Corporation warns that the US may go on producing oil at 1979 rates for only 20 to 40 years.

Past experience has taught the folly of complacency or euphoria. It is encouraging, to be sure, that new sources, such as North Sea oil, are adding to the total world supply and that the Soviet Union, the world's largest producer of petroleum, is not running out of the resource as earlier believed. But it would be short-sighted in the extreme not to plan ahead. Especially given the political uncertainties in the Middle East. If war broke out between Israel and Syria, say, or if the Palestinian issue led to an ugly Arab-Israeli confrontation, it cannot be ruled out that the Arab nations would use oil as a diplomatic weapon. They did so in 1973 and they could do so again. Inasmuch as 40 percent of US oil imports come from the Arab producers, it is clear that the American economy would be severely hurt in such an event.

In a certain sense, in fact, the American people can be grateful that OPEC price increases finally forced them to come to their senses and adopt rational energy policies like those of their counterparts in Western Europe. The artificially maintained cheap energy -- and profligacy -- of the past was economically suicidal. It was also morally wrong. Higher oil prices have brought on successful conservation as well as made alternative resources economically attractive. Hence the United States, while undoubtedly pleased over what seems to be a weakening of OPEC's power and a more stabilized oil situation at the moment, ought not to let up on its push to develop substitute sources of energy -- and to m ake more efficient use of it.