Page 444 - Arabia the Gulf and the West

The ‘Sting’ 441

meeting of OPEC in December. Thereafter production dropped to 1.3 million
b/d early in 1976, recovering to 2 million b/d by the middle of 1977. A further

fall, as we have seen, occurred in the early months of 1978. The effect of this
stagnation, which should have gladdened the hearts of the Kuwaiti ‘conser­
vationists’, was to provoke insistent calls from the Kuwait government in the

late summer and early autumn of 1978 for an increase in oil prices.
Although it was a call calculated to arouse a natural response in the breasts of
the other members of OPEC, things were not quite as they had been five years
earlier, nor was ‘conservation’ the tactical weapon it had once promised to be.
Demand for oil was still depressed, selling prices were well below posted
prices, the depreciation in the value of the dollar had further reduced real

income, and most of OPEC’s members were having difficulty in covering their
expenditures out of current revenue. Several, in fact, had either contracted, or
were actively seeking, loans to cover their deficits. On the face of it, a price
increase seemed only logical as a means of recovering lost financial ground. Yet

there were sufficient imponderables in the situation to induce caution. A price
rise could lead to a further drop in consumption, to a reduction of economic
activity in the Western industrial countries, to a fresh decline in the value of the
dollar and, at the end of the day, to diminished oil revenues. Even the adoption
of proposals which had long been floating about to end the system of fixing

posted prices in dollars and to peg them instead to a ‘basket’ of strong
currencies might not alter the outcome.
‘Conservation’ was an equally sterile option. In the case of Kuwait, for
instance, an absolute minimum of 1.5 million b/d of oil had to be produced to

provide sufficient associated gas to run the shaikhdom’s utilities, including the
electricity needed for the thousands of air-conditioners to which the Kuwaitis
had become addicted. OPEC’s main problem, in any case, was to sell its oil in
quantities and at prices sufficient to meet its members’ current financial needs,
rather than to conserve it as an asset for the future, an asset which might well

turn out to be largely illusory. It was a problem which weighed more heavily
upon countries like Persia, Algeria and Iraq, with large populations and
ambitious programmes of modernization, than it did upon sparsely populated
countries with limited potential for development, like Saudi Arabia, Libya and
Abu Dhabi. A glut of oil on the market, as existed in the first half of 1978, could

well have led the two groups to compete for buyers, thereby straining the unity
of OPEC and perhaps even endangering its whole structure.
*
■ ^>r°m th 8 c^eer^ess prospect the organization was rescued by the revolution
ln ersia in the autumn of 1978 which eventually unseated the shah and
established a republic of sorts. Persian oil production dropped rapidly in the

ast two months of the year, from 5.2 million b/d to less than 0.5 million b/d
an then ceased altogether for a time at the turn of the year. As usual, the
fo USlI?al nat^ons °f the world panicked at the thought of an oil shortage,
Orgetting overnight that there had been a surplus of oil on the market only a