Page 445 - Arabia the Gulf and the West

442 Arabia, the Gulf and the West

short time previously, and that spare producing capacity had been some 5

million b/d, roughly equivalent to the normal output from Persia. A much
relieved OPEC convened at Abu Dhabi in mid-December 1978 where it
proceeded to wring what advantage it could from the changed situation. The
posted price of the marker crude, standard Arabian light, was raised by 14.5
per cent, the increase to be imposed in four stages, commencing with 5 per cent
on 1 January 1979, when the price would rise from $13.66 to $14.34 Per barrel.

Western reaction to the increase was generally passive, being conditioned, as
OPEC had intended it should, by the fact that the new price was to take effect
in stages. The mildness of the reaction, together with the predictable cries of
alarm about a looming oil shortage which issued from the usual pack of
Western soothsayers, persuaded the magnates of OPEC that they were foolish

to content themselves with a finger when an arm was theirs for the taking. One
after another they proceeded to add surcharges of a dollar or more a barrel to
the price of their oil until eventually, at an extraordinary session of OPEC
called in the last week of March 1979, the organization resolved to bring
forward the full increase for the year of 14.5 per cent to 1 April. What was
perhaps more significant than OPEC’s readiness to exploit any opportunity to

raise prices was the abandonment of all pretence at regulating the official
selling prices (as posted prices were now called) charged by individual mem­
bers for their oil. All states, as the official communique delicately phrased it,
were entitled to levy whatever surcharges or premiums ‘they deem justifiable in

the light of their own circumstances’. What this meant in practice was that, on
top of the usual premiums for specific gravity, geographic location and other
differentials, every member country was at liberty to impose whatever addi­
tional charge it wished.
A free-for-all followed, which entered its manic phase in May when price
leap-frogging took place on almost a daily basis. Some peculiar incidents

occurred of which the Western public was mostly unaware. The revolutionary
government in Tehran demanded that B P and Shell pay pishkesh, in the form of
the obligatory purchase of a quantity of Persian oil at spot market prices (up to
$35 a barrel), if they wanted to qualify for six or twelve months contracts,
and then in late June it tore up the contracts it had signed, even though they

were supposed to run to the end of the year. The Algerian government
increased the price of its crude to $21 a barrel in the third week of May in
direct violation of its contracts with the oil companies, which stipulated that
prices could only be raised at quarterly intervals unless OPEC had authorized a
mid-quarter increase, which it had not. To get around this obstacle the
Algerians asked for the voluntary compliance of the companies with e

increase, adding pointedly that if it was not forthcoming, oil prices woul e
*
revised at the outset of the next quarter in such a way as to compensate A gen
for any loss of potential revenue she might have suffered in the interim. er
were also moments of light relief, such as that afforded by the oil minister