Energy: The Seven Lean Years

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There is no quick fix for the Everything Crisis caused by energy prices

Once more the stage is set, the actors are in place and the grimly familiar ritual is preparing to play itself out. The price of oil is rising once again. Like a waking nightmare that seems never to end, the energy crisis of leaping prices, dwindling supplies and multiplying miseries goes on and on.

In all the sweep of postwar history, no event, no issue, no political or social process has more profoundly shaken the established world order, or brought about more rapid and tumultuous economic change, than the end of the era of cheap oil. This change has been called the energy crisis, but the term is too limiting. Rather than being merely an ongoing trauma over oil, the energy debacle has become a crisis of economics, of politics, of the very balance of power in world affairs. In short, it is an all-embracing, mesmerizing Everything Crisis.

The immediate focus is Bali, Indonesia, where the jet-about oil ministers of the 13-nation Organization of Petroleum Exporting Countries are gathering this week. The occasion will be OPEC's 59th ministerial meeting since the cartel was founded in 1960. Looming over all other discussions: whether to push up the cost of oil beyond the $30 Saudi benchmark price and the $37 per bbl. ceiling price set in June.

Seven lean years have passed since OPEC, in a few short weeks of 1973 and 1974, began radically manipulating worldwide petroleum prices by increasing the cost of a barrel of crude from $2.41 to $10.95. Since then, oil-consuming countries have paid the oil producers a staggering $370 billion for the precious black product that is essential to industrial survival. Saudi Arabian Oil Minister Sheik Ahmed Zaki Yamani warns that oil could easily rise to as much as $60 per bbl. in the foreseeable future (see box).

Until recently, bulging worldwide inventories in the oil-importing nations acted as a brake on rising prices. But the war between Iran and Iraq, which has cut total OPEC production by about 3.5 million bbl. per day, has created pressure for higher prices. Repeated bombings and shellings have reduced to rubble the refineries and export facilities in the two countries, and experts believe that it would take up to a year after hostilities ended before normal export levels could be resumed.

With the supply outlook clouding over, oil companies have become reluctant to draw down their inventories. As a result, prices have begun to rise for both crude and a variety of refined products like heating and diesel oil and gasoline. The little oil now being sold on the spot market is commanding about $40 per bbl. The price of heating oil on the East Coast is expected to increase from about $1 per gal. to perhaps $1.25 per gal. by early next year. Those rising prices are themselves encouraging cartel members to seek crude oil increases, thus intensifying the vicious circle of spiraling prices.