Oil up, but threat of price war looms

Press, 18 December 1976, Page 1

Oil up, but threat of price war looms

PA-Reuter Doha, Qatar The world’s leading oil producers yesterday risked a damaging price war by agreeing to a two-tier price increase.

Eleven of the 13 members of the Organisation of Petroleum Exporting Countries will raise their prices by 10 per cent on January 1, and by a further 5 per cent on July 1 next vear.

But the Venezuelan Oil Minister (Air Valentin Hernandez) said that two days of bitter haggling between O.P.E.C.’s moderates and hardliners ended with Saudi Arabia and its close ally, the United Arab Emiriates (UAL), being allowed to raise their prices by only 5 per cent. It was not immediately clear whether Saudi Arabia, the world’s biggest oil exporter, and its neighbour would follow their partners with a 5 per cent increase in July. The implications of a double price structure will be extremely worrying for 0.P.E.C., whose strength and unity have hinged on maintaining a single basic crude-oil price. Oil market analysts say that if the Saudis and the Emirates boost production to meet a likely rush from the industrial West for their bargain-price crude oil, it could start a price war and lead to an O.P.E.C. break-up. From January 1, the two O.P.E.C. States will be undercutting their partners by more than 50 United States cents a barrel. They compete directly in the same markets as Iran, Iraq, Kuwait, and Qatar.

Iran’s O.P.E.C. delegate, Mr Jamshid Amouzegar, said on Thursday that he thought it would be impossible to have two different prices for similar types of oil sold in the same area.

But sources close to O.P.E.C. believe Saudi Arabia and the U.A.E. will carefully limit their sales to avoid antagonising their partners further. Between them, the two countries produce about a third of the organisation’s total output of 30 million barrels of crude oil a day. Experts calculate the increases w’ill push up the price of an average barrel by about 8 per cent, adding about 10 billion dollars to the West’s oil import bill. The price of a standard barrel of O.P.E.C. oil will rise from January 1 to

SUS 12.66 from the SUSI 1.51 level set 15 months ago. The price of a barrel of Saudi , “Arabian Light” crude, until now used as the standard or marker by 0.P.E.C., should rise to only SUSI2.OB under the exemption won by Saudi Arabia, O.P.E.C. sources say.

The agreement will be formally ratified at a plenary session of the 13 Ministers.

The compromise was hammered out in intensive bargaining which stretched into the early hours of the morning after Saudi Arabia’s Sheikh Ahmed Zaki Yamani returned from a lightning trip to Jeddah.

He went home to get his Government’s agreement to the increased prices after it insisted on extending the current freeze on

oil prices, imposed in October last year, for a further six months.

During his absence, most of the O.P.E.C. Ministers agreed that a 15 per cent rise would be justified and hardly compensate them for an estimated 26 per cent increase in the cost of their imported goods during the price freeze. Iraq’s Minister, Mr Tayehjabdel Karim, who had demanded an oil increase of 26 per cent, utterly rejected 10 per cent as too low. But he said a 15 per cent rise would be acceptable if all 13 Ministers agreed.

Under the agreement, the 11 States will reach their 15 per cent increase six months later than they initially wanted. But the O.P.E.C. Ministers have agreed to help cushion the impact on the poorer consumer countries

who will suffer most from the new increases. O.P.E.C. will channel back to the poorer countries additional aid, equivalent at least to the increase in their oil bills, the Ministers decided. The oil States will ask their Finance Ministers, due to meet in February, to work out the exact dedetails of an aid scheme which could add a further one billion dollars to the existing O.P.E.C. fund for the Third World.

Dr Amouzegar told reporters that O.P.E.C. would also try to offer financial help to those industrialised countries such as Britain which are suffering from balance-of-payment problems.

This could take the form of bilateral aid or through the medium of international organisations such as the International Monetary Fund.