Middle East Oil Crises Since 1973 by Benjamin Shwadran

Author:Benjamin Shwadran [Shwadran, Benjamin]
Language: eng
Format: epub
Tags: History, General, Middle East
ISBN: 9780429717871
Google: 2v4tAQAAIAAJ
Goodreads: 3442978
Publisher: Westview Press
Published: 1986-08-12T00:00:00+00:00

Changes in the Market

As Saudi Arabia had correctly assessed, the increased demand for oil in the second half of 1976 had been the result of stockpiling rather than increased consumption because of economic recovery. Demand for oil in 1977 consequently fell for all OPEC members. Saudi Arabia was forced to return to the OPEC fold. The Saudis would have to recognize—Yamani's pontifical declaration notwithstanding—the power of OPEC to set uniform prices for all members.

A practical answer to the continuing impasse lay in the original Qatari compromise plan. Late in May it was reported that the eleven OPEC members who had voted in December 1976 to raise prices an additional 5 percent in July had agreed to forgo the extra increase in return for a pledge by Saudi Arabia and the UAE to raise their prices by 5 percent.20 By the end of June it was reported from Vienna that nine members, except Iraq and Libya, had agreed to the Qatari plan. At the same time, word came from Riyadh that Saudi Arabia and the UAE had raised their prices to bring them in line with the OPEC majority.

As the conference opened in Stockholm on July 12, the general atmosphere was relaxed, and all agreed to freeze prices for the balance of 1977. Saudi Arabia indicated that it favored freezing oil prices for the entire year of 1978. Even Iran, which had always demanded higher prices, indicated agreement with Saudi Arabia.

When the OPEC delegates gathered for their fiftieth conference in Caracas, Venezuela, on December 20, 1977, it was evident that members would not agree to increase the price of oil. Iraq demanded a 23 percent increase to compensate for the inflation rate of world prices. This inflation figure was disputed by some members. Venezuela and Indonesia proposed a 5 to 8 percent increase; Saudi Arabia, the UAE, Qatar, and Iran urged freezing prices. Yamani stated that his country's position was based on market reality—world oil glut. This was reflected in an announcement by Algeria, Libya, and Nigeria of a reduction of twenty to thirty cents a barrel. The only way to force prices upward would have been to cut production, but because OPEC failed to control production it could not increase prices. After two days of heated discussion, the conference concluded on December 21 with a communiqué stating, "The Conference considered the question of a price readjustment, but the Member Countries were unable to reach a Common Consensus on this issue."21 In practical terms, this meant that prices would remain frozen at least until the next conference scheduled for June 15, 1978.

The market situation had not improved, and in fact there had been a drop in demand, when the OPEC conference opened in Geneva in the middle of June 1978. Proposals to increase prices were rejected and it was decided to maintain the existing prices to the end of the year. The hawkish members succeeded, however, in passing a resolution to form a committee for protecting oil revenue paid in dollars.

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