At times the wheeling and dealing seemed more like an American
political convention. As the delegations huddled in their suites at Caracas’ luxurious Hotel Tamanaco, Venezuelan Oil Minister Humberto Calderón and his aides were wearing out the corridor carpets in an all-out attempt to get OPEC’s act together. But after two late nights of lobbying and three days of dissentful plenary meetings in the ornate Naiguata banqueting salon, the best they seemed likely to accomplish was to paper over the divisions between Libya, which set a new high of $30 a barrel before the meeting and was looking for more, and Saudi Arabia (and others), who wanted to stick to the $24 price that they had set as their new rate.
Nothing that happened at Caracas could alter the fact that OPEC was deeply divided over prices, leaving open chances of wildcat increases by individual members. The increases already imposed by the cartel had reached around 100 per cent in a year—the most painful blow to the economies of the industrialized nations (to say nothing of the Third and Fourth Worlds) since the 400-percent increases of the black years of 1973 to 1975. There was some hope however of a respite. For one thing, demand, in the words of John Lichtblau, executive director of the Petroleum Industry Research Foundation in New York, was expected to stay “flat” as consuming nations concentrated on absorbing the shock to their balances of payments. For another, the steam was beginning to go out of the spot market (where prices of around $40 a barrel for months have been pressuring OPEC members to cash in) because consumer nations had largely finished building up stocks (most now have three months’ in hand); and, finally, because production continues high. Right now OPEC is producing around 31 billion barrels a day against world demand of 30 million.
But Lichtblau warned that the equilibrium could easily be upset. A number of OPEC countries had been talking about production cuts for other than technical reasons, and while the world could cope with a smallish cutback, reduction to, say, 29 million barrels a day could mean that the spot market would go “crazy” again. The countries to watch, said Lichtblau, were Iran, for obvious reasons, Libya, and Iraq, which needs the petrodollars, though “they [the Iraqis] seem to be in the moderate camp as of today.”
Like George Orwell’s equality (“some animals are more equal than others”), moderation in the OPEC context nevertheless represented an extreme, perhaps mortal, blow to consumers’ hopes of maintaining standards of living. Canadian economists calculated that the taxpayers’ bill for compensating the eastern part of the country (which has to import oil) would be more than three times as much as in 1978, while Finance Minister John Crosbie’s supposedly hefty tax increases were made to look totally innocuous, even inadequate.
In the United States, the new increases were estimated to add at least $20 billion to the oil bill next year, bringing it to the grand total of $80 billion, about twice as much as in 1978.
That seemed certain to thrust the U.S: current account deeper into a deficit (it was hoping to lower the deficit in 1979) and add new impetus to the administration’s attempts to restrain imports. Even before the OPEC meeting, President Jimmy Carter was giving serious consideration to a 50-cent tax on every (U.S.) gallon of gasoline. Other measures in the planners’ files: mandatory rationing (a rather less likely option), energy-saving changes in the driving laws (allowing right turns on red lights), promotion of mass transit and firmer measures to move to alternative energy sources. In Europe the reaction was mixed. As the talks in Caracas opened, Britain’s chancellor of the exchequer, Sir Geoffrey Howe—“the ground is moving beneath us as we speak”—warned European Community finance and economic ministers that OPEC rises on top of the $6 that Saudi Arabia and others had stuck on a barrel in advance, could alter the underlying facts (of the Western economy) “in a most discouraging fashion.” But in Munich the Süddeutsche Zeitung could barely suppress a yawn, despite West Germany’s vanishing trade surplus. “The raises which will add $20 to 25 billion to the EC’s oil bill are upon us, as expected,” it said. “And we will learn to live with them—equally as expected.”
Gold speculators took a different view, however, and the price had reached a record $477 U.S. an ounce even before the outcome at Caracas was known. And in London, a group of international statesmen called for urgent and major reform of the economic system. The commission, whose members included former prime minister of several European countries, said a global effort should be made to achieve: largescale transfers of funds to developing countries; agreement on security of energy supplies and conservation; and reforms in the monetary system and means of financing development. “The existing international economic arrangements are increasingly unstable,” warned West Germany’s Willy Brandt. “Stocks of arms are piling up. After hunger, chaos threatens, after chaos, war.”
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