Saudis may force OPEC price cuts, drop own output
After months of flooding the international market with comparatively low- priced oil, the Saudis are at last confident that they can force their terms on their unwilling OPEC partners.
This is the view of well-informed sources here who say that Saudi Arabia -- in exchange for price reductions by other OPEC members -- will soon cut oil production, possibly to 9 million barrels a day from its present 10 million.
The deal is still not finalized, the sources add. And some officials of the Kuwait-based Organization of Arab Petroleum Exporting Countries (OAPEC) still doubt that the time is ripe for compromise.
But, by giving their blessing to an extraordinary meeting of OPEC oil miniters in Geneva Aug. 19, the Saudis have emphasized their conviction that events are moving their way.
Saudi Arabia -- by far the largest oil producer within OPEC -- is said to feel that its fellow members have suffered sufficiently as a result of the Saudi-engineered oil glut to be willing to agree on a common long-term strategy.
OAPEC officials point out that Saudi Arabia's oil policy particularly affected the North African oil producers, who have been selling at $40 dollars per barrel and more, compared with the Saudi $32 price.
Forced to reduce their oil exports, Nigeria, Gabon, Algeria, and Libya have actively been lobbying during the past week for just such an extraordinary OPEC meeting. Speaking to reporters in Kuwait Aug. 6, Libyan Foreign Minister Abdul-Salam Tureiki admitted that "some oil exporting countries are in a tight situation."
Being the largest oil producer, Saudi Arabia, in the words of one oil expert, "cannot be challenged." This expert views opposition to Saudi Arabia's long-term strategy as "a lost battle." Or, as one OAPEC official puts it:
"The OPEC countries and especially the North Africans made the mistake of not accepting Saudi long-term strategy several years ago. They are now confronting an opponent they can't defeat instead of attempting to safeguard their interests by evolving their positions from within."
Behind the current clash over levels of oil prices and production within OPEC lies a confrontation of fundamental interests: While countries like Algeria with declining reserves, or countries like Nigeria and Iran with large populations, wish to finance diversification, Saudi Arabia -- with approximately 5 million citizens and a quarter of the world's oil reserves -- has no such need.
Addressing students at the Dhahran University of Petroleum and Minerals earlier this year Saudi Arabia's minister of oil, Ahmad Zaki Yamani, said: ". . . Let me take the case of Algeria. Algeria at present sells 1 million barrels a day, in 1985 it will only be selling one-half million, and in 1990 its sales will drop to zero.
"If I were Algerian, I would certainly wish the price per barrel of oil to reach $100 [US] this very day even at the risk of driving the world to an economic depression, because no matter how bad the world is economically, it will still buy that 1 million barrels of oil from me. And if by doing so I encourage and drive the world to invest in alternative sources of energy, such investments will not bear fruit in less than 10 years, at which time the matter would be of no concern to me."
Saudi Arabia, on the other hand, fears that development of alternative energy sources would make it impossible to sell sufficient oil to meet its long-term financial requirements. Says Sheikh Yamani:
"We do not want to shorten the life span of oil as a source of energy before we complete the elements of our industrial and economic development and before we build our country to be able to depend on sources of income other than oil."
Some OAPEC officials feel the Saudis are following a dangerous course -- that Saudi oil policy is based on an assumption that a traditional society can be converted into a modern state within one generation.
"This is an illusion," one official commented this week, adding, "The Saudis will need at least three to four generations before they have completed the process."
He argues that by attempting to speed transformation, Saudi Arabia is running the unnecessary risk of explosive social tensions that could endanger its internal stability.