More Woes on the Oil Front

Protests at home and a price revolt in OPEC as Saudi power wanes In Concord, N.H, it took the form of an automobile "honkin" outside Jimmy Carter's re-election campaign office. In Nashville, a 500-lb. pig with BIG OIL painted on its side was led to city hall to munch slops from a dish labeled AMERICAN WEALTH. In Washington D.C., elderly citizens bused in to join a picket line outside the American Petroleum Institute.

In more than 100 cities and towns in 35 states last week, hundreds, and in some cases thousands, of demonstrators joined in the biggest protest ever against what the country is targeting as "Big Oil." They voiced fears of a winter of low temperatures and high fuel costs, passed out "Big Oil Discredit Cards" and waved banners declaring, "I don't want to freeze in the dark." For most, the principal peeve was not gasoline prices or petroleum industry profits but the 60% rise in the cost of heating oil in the past 2 1/2 years.

Whether justified or not, the Big Oil protest, which was sponsored by a number of diverse labor and political groups came at an odd time. As it happened the most visible oil price gougers last week were not the oil companies but some of the more militant price hawks in the Organization of Petroleum Exporting Countries. Iraq, Libya and Iran all announced boosts of 10% or more in the overall cost of their crude, and other producers seem likely to follow suit. What really alarmed oil consumers was that the Libyan and Iranian rise, like that announced by Mexico a week before but unlike those announced by Iraq or earlier by Kuwait broke through the $23.50 per bbl. price the cartel set in June as a "ceiling" for at least six months.

This early piercing of the OPEC lid came despite an attempt by Saudi Arabia the largest oil producer, to keep the lid on' Last July, Saudi officials announced that they would raise their daily oil production during the remainder of 1979 from 8 5 million to 9.5 million bbl. Not so long ago, such an increase would have prevented unilateral price hikes. No longer. The rules of the oil game have changed.

The essential problem, as the Saudi Minister Sheik Ahmed Zaki Yamani admitted during a visit to Washington last week, is that OPEC has "lost control" of price levels. It is now up to the oil-consuming nations to limit price increases by curbing demand. Yamani's point is well taken. The only reason that Libya and Iran have been able to lift prices so much so soon is that, despite an international agreement earlier this year to curb imports, demand for oil continues to grow at a time when Iran's internal problems and lack of technical expertise threaten supply cuts at any moment. In the first eight months of this year, oil imports by Japan, Italy, West Germany and France increased by between 5% and 13.2%.

Though U.S. consumption has fallen somewhat, the country's imports have also nsen, though only by 1%.

Yamani argued that the U.S., the largest oil consumer, must make new efforts to expand its own domestic oil reserves while simultaneously curbing consumption. The nation's reaction to the energy problem up to now, he insisted, has ranged from "panic" to "almost absolute apathy"-he urged "drastic action" that might even include some form of rationing. Yamani further warned that harsh steps taken now would not necessarily prevent further OPEC oil price increases next year, but that a continued failure to cut demand would be an economic catastrophe."

The latest price rises are not the only bad news to come from the cartel this month. In recent weeks, it has become known that several major oil producers including Dubai and Qatar, are moving to end several large long-term supply contracts so that they can sell their crude on the spot market in the Dutch oil port of Rotterdam, where prices have far out stripped OPEC levels; they have risen from 433 per bbl. a month ago to $40 last week At the same time, Kuwait, Nigeria, Algeria and Venezuela have announced fur ther oil production cutbacks, ranging from 10% to 25%, next year. The basic aim: to keep supplies tight and prices high if and when worldwide demand slumps because of a broad economic slow down in the consuming countries.

The implications of the escalation in prices and tight supplies are ominous. Last week studies by both the CIA and the Department of En ergy forecast a return to shortages in the U.S. in the early 1980s. Another prediction: a rise in the basic OPEC price of crude to $86 per bbl. by the mid-1990s. Even in the immediate future the outlook is grim. Testifying before Congress last week, Federal Reserve Board Chairman Paul Volcker warned that "the success of the anti-inflationary effort is very much bound up in what happens to energy. Our economy is vulnerable Our security is vulnerable."

The dismal outlook was spelled out in blunt terms last Thursday by Jimmy Carter. Addressing delegates to a national energy conference, the President warned that "in the future, supplies are going to be shorter and prices are going to be higher." He added: "My own judgment is that OPEC is probably producing at a maximum level, and the tendencies are toward reduced production."

This tight balance means that the consuming countries can do little but swallow further price increases and al most nothing at all to ward off the possibility of future shortages. Last week the Senate approved and passed to the House Carter's stand-by gasoline rationing plan, which now seems certain to become law; even so, it can only be used in times of severe shortages. The President also agreed to support congressional moves to grant funds to help middle-and lower-income people pay their proved by higher the Senate energy bills. A plan approved by the Senate Finance Committee last week would extend tax credits for high home heating costs to 9 million families with incomes of $22,000 a year or less; they would get an average credit of $62 a year, though it would be available only to homeowners using high-cost heating oil or natural gas from Canada or Mexico.

The main concern in Washington now centers on just what will happen at the oil cartel's next price meeting, to be held in Venezuela in December. Last week the current president of OPEC, the Oil Minister for the United Arab Emirates, said that he personally would prefer that there be no formal increase, but it seems much more likely that the militant producers will push through some rise, perhaps to the $25 or $26 level.

As worrisome as the price situation is the fact that the OPEC countries are once again speaking openly of wielding the "oil weapon" for geopolitical purposes. In his Thursday address, Carter buttressed a call for greater emphasis on conservation with a warning that the U.S. must be able to protect itself from nations "like Libya, who in time of crisis cut back on production for political punishment, or harassment or perhaps even blackmail."

In fact, the cutback weapon was being waved last week by other, more influential, OPEC governments. Iraq's President Saddam Hussein said in a Baghdad speech that the Arab world is "threatened by fragmentation more than ever before," and declared that the threat of a new oil embargo would remain the Arabs' chief weapon against their enemies. Yamani himself did not hesitate to drop some hints of a direct link with U.S. Middle East policy. Said he: "If we have peace in the area, you will be amazed at how many beautiful and healthy results you can get from that, including in the field of oil." Translation: the cost of crude oil will increasingly be reckoned in terms of diplomatic cooperation as well as dollars.

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