Searching for Stability

Amid obvious signs of concern about falling world oil demand, leaders of the Organization of Petroleum Exporting Countries gathered in Algeria last week for their first summit conference. Declining oil revenues in recent months have caused small but telling fissures in the cartel's unity, and they were apparent from the start of the meeting. Four of the 13 OPEC chiefs, including King Faisal of Saudi Arabia, the biggest oil producer, did not even show up, but sent representatives instead.

Grand Policy. The main purpose of the three-day summit, held in the isolated beach resort of Club des Pins outside Algiers, was to fashion a united policy for the cartel for a grand negotiation with consumer nations, perhaps this summer. Though much of the OPEC rhetoric was as blustery as ever, there were clear indications that the oil producers were ready to bargain with the countries that have been struggling to pay for the fourfold increase in oil prices over the past 1 1/2 years.

The generally worded 14-page declaration of principles adopted by the OPEC delegates carried one unmistakable message: OPEC is worried about maintaining its windfall increase in economic and political power. In any conference with industrial nations, the delegates agreed they would aim for "stabilization" of oil costs. That in effect means keeping prices at present high levels and adjusting them up or. far less likely, down to keep pace with world inflation.

The OPEC chiefs insisted that the agenda of any international conference would also have to deal with such issues as reform of the world monetary system to favor less developed nations and a speed-up of their industrial growth. The delegates demanded that any bargaining on oil prices be expanded to include all raw-materials prices--a position vigorously opposed by the U.S.

The cartel members agreed to accept France's invitation to Saudi Arabia, Iran, Venezuela and Algeria to represent OPEC at a preliminary meeting in Paris on April 7. They will sit down with representatives of the U.S., Japan and the Common Market countries, along with delegates from Brazil, India and Zaire. The April meeting will lay the groundwork for a full-dress conference between oil producers, industrial nations and Third World countries later on.

Foremost in OPEC planners' minds as they prepare for these meetings will be what they regard--not inaccurately --as the strategy of the consuming countries to crack the cartel's price front. Last week, for example, delegates of the 18 oil-consuming nations that make up the International Energy Agency met in Paris to work out their own position regarding the oil states. The U.S. position has been that it would not attend the April meeting unless it had strong backing within the IEA on at least one or two proposals aimed at helping to free the industrial world from its heavy dependence on imported oil.

One proposal calls for consuming nations to set a minimum or "floor" price for imported oil that would protect the investments of companies developing new energy sources from the risk of suddenly falling crude prices. The other would achieve the same objective by levying a common tariff on oil imported from outside IEA nations. The Europeans, for their part, are looking for another method of protecting investment in energy development that would be more flexible and thus better able to meet the varying needs and capabilities of the consuming countries.

Blunt Pledge. OPEC worries about the consuming nations' posture were clearly reflected in its declaration, which condemned "any plan or strategy designed for aggression, economic or military, against any OPEC member." The criticism was a clear reference to statements by U.S. Secretary of State Henry Kissinger and President Ford on the possibility of using force to prevent economic "strangulation" of the West by the oil producers. Algeria had proposed that OPEC members make a blunt pledge to impose another oil embargo if any member was attacked, but the final declaration merely noted that the cartel would take "immediate and effective measures to counteract such threats with a united response."

No amount of bombast could hide the concerned mood of the meeting. The recession in the industrialized world, caused in part by towering oil prices, has sharply reduced demand for OPEC crude. This has lowered revenues for oil producers, who have had to cut production. OPEC output, which averaged 33 million bbl. a day in 1974, is now down to an average rate of 27 million bbl. Cartel officials note that even with shrinking demand, oil producers are taking in more money now than they were a few years ago. Yet the more production falls, the closer OPEC comes to an exquisitely difficult political problem: how to apportion cuts within the cartel so that no member suffers more than others. Already Abu Dhabi has publicly complained about the fact that the cartel has taken no steps to allocate production cuts. In these circumstances, the stresses within OPEC can only intensify.

Such pressures are not likely to bring down OPEC soon, but they are helping to create a climate for more cooperative trade relationships between the producers and their customers in the West. Last week, for instance, the U.S. and Iran signed a major agreement that commits Iran to spend about $ 12 billion on American goods and services, including up to eight nuclear reactors, over the next five years. The State Department insists that the deal has nothing to do with American policy toward OPEC. Yet the better U.S. relations are with individual cartel members--and the more dependent these countries are on American equipment and technology--the more influence the U.S. will have on OPEC as a whole.

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