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Sheikh Yamani explains why Saudis must charge less for oil than Arab neighbors

It was a lesson in international oil economics, and the teacher was Ahmad Zaki Yamani. A member of the audience, dressed in flowing white robe and red Arab headdress, approached a microphone with a question for the Saudi minister of petroleum and minerals.

"The Saudi citizen sees the oil policy of the Kingdom of Saudi Arabia as one under which we produce more than the needs of our economy and sell at a price less than that of others, including those of the Gulf countries. In response to these efforts, we find that we are under attack in the media and by the heads of state of Western countries."

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He paused, looked up at Sheikh Yamani and asked, "Doesn't Your Excellency see that the time has arrived when we should deal with the consuming countries without us always being the ones who sacrifice?"

The auditorium of the University of Petroleum and Minerals filed with extended applause.

"The question arises out of pain," Mr. Yamani replied. "Pain at why we sell for less than others sell and why we produce so much more than we need. But whereas we are pained, we must look at the facts clearly; we must not be moved in the direction that other countries are moving in.

"If you had been with us at the OPEC strategy committee, which spent 2 1/2 years studying this question . . . you would have been amazed to have found out that raising prices with no controls or restraints would not have been in favor of certain OPEC countries and specifically Saudi Arabia," Mr. Yamani explained.

"If we were to force the Western countries to invest large sums of money in alternative energy resources," he continued, "it would take seven to 10 years to bring about some results of these investments, which would reduce oil demand to a level that would affect Saudi Arabia, which at that time would not find enough markets to sell its oil to meet its economic demands.

"Other countries," the Saudi oil minister added, "have a clear interest in obtaining the largest possible income in dollars for each barrel for the short period it can sell for."

His example was Algeria, which at present is selling 1 million barrels a day. He said that by 1985 Algerian crude sales will fall to half a million barrels per day and that by 1990 Algeria will no longer be an oil-exporting country.

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"If I were an Algerian, I would no doubt wish that the price of oil today reach $100 a barrel -- even if I brought the world economy down. Because no matter what happens to the world they must buy this oil from me regardless of how much I encourage them to look for alternative energy sources, because these alternatives will not be achieved for at least 10 years, and at that time I don't care," Sheikh Yamani said.

But apparently the Saudis do care, and he explained the Saudis' traditional moderate position in OPEC as being linked to the kingdom's desire to maintain oil prices high enough to equal the "true value of oil," yet not so high as to cause a stampede of energy research and investment that might put the Saudis out of the oil business too soon.

"The interest of the Kingdom of Saudi Arabia is that we extend the life of oil to the largest extent possible to allow us to build our economy in the most diversified manner, including industry and agriculture," he said.

The method of extending the "life of oil" in Saudi Arabia is closely tied to the eventual adoption of the OPEC long-term pricing strategy. The strategy, developed by an OPEC committee chaired by Mr. Yamani, calls for an annual increase in oil prices equivalent to the rates of inflation and growth in the industrialized countries. It urges adoption of a basket of currencies rather than sole reliance on the dollar.

The strategy was agreed on in principle last May, but the details of execution and the apparent inability of OPEC to agree to a unified price have placed the final adoption in doubt.

"If the oil-producing countries could establish definitely that equation which the strategic OPEC committee had presented . . . at that point those who sit behind their desks and make decisions as to how to invest capital, would direct their decisions at conserving energy and redirecting their investments at alternative energy sources," the oil minister said, adding, "but this has not occurred."

In addition, Sheikh Yamani expressed concern about OPEC's declining position in the market and the possible effect on Saudi Arabia when Iran and Iraq resume large exports of crude.

He predicted that Saudi production, presently at 10.3 million barrels a day, mig ht drop to as low as 5 million barrels in 1982.

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