Business: Costlier Oil

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And a bigger cartel too?

Amid the most elaborate security operation that Norwegians had seen since World War II, 70 representatives of ten Arab countries gathered in Oslo last week to discuss their favorite topic: oil. The news that came out of their three-day conference was about as chilly as the city's 50ºF. weather. The Arabs not only wanted to bust the two-year freeze on oil prices with a substantial increase in 1979, they also called for a plan under which oil prices would continue to rise in step with the cost of other raw materials.

The countries represented at the meeting were members of the Organization of Arab Petroleum Exporting Countries, a subgroup of OPEC that accounts for more than 60% of its production. Given the Arabs' weight in OPEC councils, it is almost certain that some price increase, possibly along the lines of the Saudi Arabians' suggestion of 5% on Jan. 1 followed by subsequent hikes of 2% or 3% at "relatively frequent intervals," will be adopted when all the cartel's members meet in Abu Dhabi in December.

By way of explanation, OAPEC spokesmen argued that a sizable increase was warranted because "persistent erosion" of the dollar and inflation in the developed countries had cut the real price of a liquid barrel of oil almost by half since 1973. Some other delegates also stressed Arab pique at the Camp David agreement. Iraqi Oil Minister Tayeh Abdul-Karim blasted it as "a policy of surrender" and made clear that he thought the Saudi policy of "moderation" on oil prices had done nothing to advance the Arab cause in the Middle East peace negotiations. Saudi Representative Abdul Hadi Taher replied bluntly that Middle East politics should scarcely be "the most important factor" in OPEC price policy.

The Norwegians had invited the Arabs to Oslo in hopes of selling them some of the equipment and expertise they have developed in exploiting their own North Sea oil deposits. The Arabs, in turn, want the Norwegians, as well as other non-OPEC oil producers like Britain and Mexico, to link up with the cartel in some fashion, the better to expand its power to keep prices high. While the Norwegians emphasized that they had no intention of joining OPEC, Energy Minister Bjartmar Gjerde acknowledged the interest of his country in "prolonging" the benefits it has been getting from its North Sea reserves and noted that Norwegians are beginning to feel "sort of in between" the industrial world and the oil exporters. It may only be a matter of time before Norway and other in-between nations form a group that will remain out of the cartel but "consult" with OPEC on prices and other oil matters.