OIL: Trying to Cope with the Looming Crisis

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At a classically chic diplomatic dinner in a stately residence on Washington's Embassy Row one night last week, the conversation flowed as easily as the vintage French wine. The guests, all elegantly dressed, were a sprinkling of the capital's elite: the envoys and finance ministers of half a dozen nations, American and British financiers and top White House Aides Robert Hartmann and Philip Buchen. The host, the modern equivalent of a Levantine legate, was Ardeshir Zahedi, Iran's Ambassador to the U.S. There was pearl-sized gray caviar from the Caspian, of course. But the most remarked-upon item was the menu itself: it was lavishly printed on oversize imitation American dollar bills, British £5 notes, Swedish crowns and twelve other currencies. And dessert might have symbolized the grand new wealth of an oil power: a chocolate mousse topped by a miniature money tree, festooned with artificial gold coins.

Choking the System. The ambience of that ambassadorial dinner contrasted severely with the somber mood that pervades Washington and much of the non-Communist world. The root problem is the enormous cost of imported oil, now more than $11 per bbl.,* a fourfold inflation in only one year. The increase has enabled the oil exporting countries to earn an almost inconceivable amount of foreign currency: about $100 billion this year. Unless prices weaken, next year's total will swell to $108 billion. By the end of this decade, the 13 nations of the Organization of Petroleum Exporting Countries (OPEC) could have a surplus of gold, dollars, pounds, marks, francs and other foreign currencies amounting to $650 billion; by contrast, the U.S.'s reserves are now $15 billion.

Already the OPEC countries have been the recipients of by far the greatest international transfer of capital in history. Because many nations are becoming poorer while the oil exporters become richer—and much of the oil money is neither spent nor placed in long term deposits or investments—the huge transfer of wealth threatens to choke the international monetary system and strangle world trade.

Mining Oilfields. In chancelleries and countinghouses nearly everywhere, officials fear economic crisis leading to political instability. The evidence of this gloom was clear and plentiful last week. The price of shares on the stock exchanges continued to plunge—not only on Wall Street but also in London, Paris and other major cities. In Washington, a pall of pessimism hung over the annual meeting of the International Monetary Fund and the World Bank. Representatives of more than 120 nations listened attentively to cataclysmic predictions that they would have dismissed immediately a year or two ago. The atmosphere was such that sober, responsible people from Beirut to New York were ready to believe that it was no longer impossible that one or more Western powers might in some dire future contemplate military intervention in the Persian Gulf to secure control of petroleum reserves. There were even unconfirmed stories in the Middle East that Kuwait had mined its oilfields and tightened security around its pumps and pipelines.