World News

Greed vs. need: cashing in on an expensive Western habit

William Lowther March 12 1979
World News

Greed vs. need: cashing in on an expensive Western habit

William Lowther March 12 1979

Greed vs. need: cashing in on an expensive Western habit

World News

William Lowther

If the Western world didn’t believe there was an oil crisis before, it may now be convinced. At the end of a week that saw some of the world’s top oil producing nations cashing in on a temporary shortage of oil from Iran, the global energy outlook had turned topsy-turvy and it seemed certain that the cost of gas in the U.S. and elsewhere would rise by around 25 per cent in the next 12 months.

In a desperate effort to head off an even more severe spiral, 19 key countries, including Canada, agreed in Paris to cut oil consumption by five per cent this year. The decision was taken by the International Energy Agency (IEA) in the hope that an immediate fall in demand would dissuade the 13-nation Organization of Petroleum Exporting Countries (OPEC) from further oil price hikes when it meets at a ministerial session in Geneva on March 26.

It is up to each individual country to decide just how it will apply the cut. Canada, which imports oil only for its eastern provinces, will probably make up the difference by pumping more of its own oil in the first instance. But Canadians will probably have to pasmore for their fuel, one way or another eventually (see box overleaf).

Elsewhere, the painful truth was that however the cuts were made they would slow national growth and increase the chances of recession. The European Comunity’s energy commissioner, Guido Brunner, said last week that member countries will have to pay an extra $10 billion for oil imports in 1979 following the latest price increases. This would mean a 20to 25-per-cent increase in Europe’s oil bill, rather than

the 14.5 per cent decided in December by OPEC nations.

Community growth would be slowed by one per cent this year. But that, said Brummer, was only a foretaste of what was in store. He reckoned that by 1985 there would be new energy supply problems demanding far more stringent measures.

Back in the U.S., President Jimmy

Carter had already asked Congress for standby authority to impose oil conservation measures. He wants, and will probably get, the right to close gas stations on weekends, force people to live in slightly cooler homes and work places, and dim outdoor commercial lighting.

He also wants standby authority to ration gasoline and, while no one will say officially, there have been strong hints from senior energy bureaucrats that the rationing plan now being considered would allow each car owner to buy 10 gallons of gas a week at regular prices and extra supplies at a cost of at least twice and perhaps three times the prevailing rate.

Regular leaded gas now costs 67.4 cents a gallon (theirs has 128 ounces, Canada’s has 160) in the United States, unleaded 71.7 and premium 73.7. OPEC increases announced at the beginning of this year will add about 7.5 cents to a

gallon of unleaded in the next few months. Other grades will go up proportionately. On top of that, a new U.S. department of energy pricing formula, devised last week to help cut consumption, will add about 12.4 cents to a gallon over the next year. Hence Energy Secretary James Schlesinger’s much publicized forecast last week of $1 a gallon for unleaded gas.

All this comes about because the prospect of getting more cash while actually producing less oil has been too much for some countries. In mid-February, Abu Dhabi and Qatar set off a round of price increases by announcing a seven-per-cent surcharge across the board on their oil production. Iran’s new rulers want as much as 30 per cent more while Kuwait last week “temporarily” increased prices by 9.35 per cent. A day later Venezuela was reported to have upped its by 15 per cent.

Saudi Arabia’s Sheik Ahmed Zaki Yamani said recently that his country—the largest of all the producers— would refrain from raising prices now and would play its traditional moderating role at the March 26 OPEC meeting. He believed the recent increases by

other OPEC members would “never be incorporated in the price structure as it was decided by OPEC last December.”

But by the end of last week, nearly 20 per cent of OPEC’s total oil production carried a surcharge and some experts in Washington felt that the next OPEC meeting would raise prices nine per cent across the board. That would add a further $1.20 a barrel to prevailing world crude oil prices—or roughly three cents a (U.S.) gallon to the price of gas.

Amid the gloom, however, there was a glimmer of a ghost of a suggestion that the wheels of the world were not grinding to a halt. It came from the rarefied atmosphere of Washington’s “resources for the future” think-tank. Dr. Milton Russell, one of America’s leading energy experts, said that in the

longer run, say five years, the price of oil would be no higher than it would have been if the Iranian crisis had not occurred. The current problems had merely telescoped price hikes—and the law of supply and demand meant there would be “less opportunity for increases in the future.”

Twenty years from now, he said, people “wouldn’t find the transportation sector of our society very much different. There would probably be a move to smaller cars and people might find living downtown “more attractive.” But on the whole “they won’t drive much less than they do now.” Cheering words, but there was a postscript. “Of course, all of this is surrounded by large bands of uncertainty,” said Russell. “I might be wrong.”