The Cartel Is Losing Its Clout

OPEC's failure to agree on quotas could bring it down

The showdown at last week's meeting of the Organization of Petroleum Exporting Countries in Vienna was taut and grim. At one of the long rectangular tables sat Sheik Ahmed Zaki Yamani, the elegantly groomed Oil Minister of Saudi Arabia. At another, roughhewn and tieless, was Seyyed Mohammad Gharazi of Iran. The issue before them was the control of OPEC itself. The result: a draw that deepened the most severe crisis in OPEC'S 22-year history and raised doubts about whether the organization can ever function as an effective cartel.

The frequently bitter two-day session merely papered over conflicts that have been brewing since 1981, when the global recession helped spawn a worldwide oil glut. The 13 member nations agreed to let OPEC's bench-mark crude-oil price stand at $34 per bbl., its level for more than a year. They also approved a 1983 production limit of 18.5 million bbl. per day. That would be about the same amount that members pumped during 1982, but it would be higher than the 17.5 million-bbl. ceiling that OPEC set for itself last March. Said a U.S. oil-company executive who observed the meeting: "Prices now will probably continue to drift down slowly, just as they had been doing."

More important than the actual agreement was what was left out. The conference did nothing to resolve the crucial question of how much oil each member should produce. That leaves OPEC without a formal method for limiting its output to maintain its price. Such a method is the heart of a true cartel. Notes John Lichtblau, president of the Petroleum Industry Research Foundation: "To agree on an overall production level does not mean that much when you cannot decide how to set this level. The question of who will produce what is really the most important thing."

OPEC never had to worry about setting individual quotas during the palmy 1970s. The group jacked up the price of oil from $1.35 per bbl. in 1970 to $29 per bbl. ten years later. But the rising prices led consumers to make strenuous efforts at conservation and attracted a flood of capital that went into rinding and pumping oil. As a result, for the first time, in 1982, non-OPEC countries produced more oil than the OPEC nations.

Also in 1982 the OPEC countries appear to have recorded a deficit in their international current-account balance for the first time since they emerged as a major price-setting force. Consequently, the poorer OPEC nations are under pressure to produce more oil to keep revenues flowing. The cartel first tried to restore order last March by assigning production quotas. That effort was an instant failure: some members overshot their ceilings by 100% or more.