Page 428 - Arabia the Gulf and the West

The ‘Sting’ 425

coming from the world’s most brazen cartel. Finally, the OPEC governments
affirmed that they were prepared to approve in principle the convening of a
conference of industrial and under-developed countries to consider the ques­

tion of future oil prices and supplies; but only on condition that all the
producers of raw materials in the world were represented and that the agenda
included both the prices of raw materials and the reform of the international
monetary system.
The Algiers conference merely enunciated once again the argument which

OPEC had been using since the Tehran ‘settlement’ of February 1971, and is
still using, to justify the continual raising of oil prices. It rests primarily upon
two assertions: one, that inflation in the industrial countries has increased
the cost of imports to OPEC’s member states; the other, that compensation
must be afforded for past exploitation by Western oil companies. Neither

of these meretricious simplifications has any validity. The mean rate of infla­
tion in the OECD countries in 1971 was 4 per cent. It rose to 7 per cent in
1973 and to 12 per cent, its highest point, in 1974. By 1976 it was down to 8
per cent, yet in that year alone OPEC’s revenues increased by 16 per cent, and

a further 10 per cent price increase was imposed by the organization at its
conference in Qatar in December. Taken as a whole, the increase in the posted
prices of crude oil between 1970 and 1974 was of the order of 800 per cent. By
January 1977 it was approaching 1,000 per cent, and in July 1979 it exceeded
1,500 per cent.

Muhammad Reza Shah was one of the foremost proponents of the argument
that the price of oil (as well as the prices of all the commodities produced by the
economically backward countries of the world) should be geared both to the
prevailing level of inflation in the industrial countries and to the cost of
production of the goods which the oil-producing countries and other producers

of raw materials were importing. Yet it is interesting to note that while the
consumer prices index in the United States rose from too in 1955 to 187 in
1974, the index price of Persian oil rose during the same years from 100 to 621,
and has kept rising ever since. As for the cost of raw materials, it might be
remarked that while in some cases, notably those of sugar and copper, prices

ave dropped dramatically in recent years, there has been no fall, but rather the
opposite, in the posted price of Persian and other OPEC oil. Moreover, there
was never any sign of the shah’s insisting that the price of oil be tied to that of
t e sugar Persia imported, or of his offering to reduce the price of oil exported
rom Persia to sugar-producing countries. To take another example of the

se ective application of the theory that the cost of imports and exports should
e regulated by the cost of their production. The marginal cost of production of
au 1 Arabian oil is roughly 15 cents a barrel, that of Kuwaiti oil about 10 cents
® arrel. A posted price of $18.00 a barrel, such as obtained in the case of Saudi
ra.ia from 1 June 1979, is equivalent to 12,000 per cent of the cost of
pro uction, while a posted price of $19.50, such as Kuwait imposed from 1