A dramatic, 33 percent increase in the price of imported oil since last fall has become the world's "most serious" economic problem, certain to cause more inflation and a loss of economic growth this year and next, Treasury Secretary W. Michael Blumenthal said yesterday.
Efforts to cope with the problem will be the principal concern at the Tokyo summit later this month, he told a luncheon press ccnference.
"There will be intense scurrying around (on energy) between now and the summit," Blumenthal said, "and in Tokyo, it will be energy, energy, and more energy," Blumenthal will meet other finance ministers in Paris next week for further discussions at the Organization for Economic Co-operation and Development (OECD).
Co-incidentally, a senior State Department official said the summit would have aong its goals "collective action" on energy, implying that one possibility would be an effort to put a lid on "spot" oil prices.
Spot market prices have run to $35 to $40 per barrel of oil, compared with the weighted average international price, including surcharges, of $17.22 per barrel. The "official" OPEC price is currently $14.55 per barrel, but only Saudi Arabia is holding to that level.
Blumenthal said that the sharply escalating OPEC prices which developed in the wake of the revolution in Iran and the subsequent sharp reduction of oil output there has had " a serious impact on inflation and growth that is unanticipated and makes the president's task (of guiding the U.S. economy) more difficult."
If Saudi Arabia - the largest producer - raises its prices to the higher end of the range of prices currently being charged by other members of the cartel, Blumenthal said, the price increase since 1978 will anount to 40 percent.
And that does not take into account another, general OPEC increase that is now expected to be put into effect at OPEC's June 26 meeting in Geneva, two days before the Tokyo summit.
Higher energy prices, Blumenthal said, "will continue to ripple through the economy" in the second half of this year, "making the policy of economic management more difficult." Because of energy costs, he said, the underlying inflation rate isn't likely to be reduced below a "hardly satisfactory" 8 to 9 percent, despite a projected economic slowdown.
Blumenthal estimated that the oil price incrases announced since 1978 would reduce the real level of Gross National Product by one quarter to one half of 1 per cent in 1980.
The actual cost of imported oil - which had been $42 billion in 1978 - would rise to about $52 billion this year and to $56 billion in 1980. All told, the major industrial nations in the OECD wouldpay an extra $33 billion for oil this year, compared to 1978, and $13 billion on top of that in 1979.
Blumenthal wound up his gloomy statistical report by estimating that the inflationary impact on the OECD as a whole would be three-fourths to 1 percent on this year's price indexes, and 1 to 1.5 percent in 1980 over what otherwise would have been the case. The U.S. inflationary impact would be somewhat smaller than the impact in OECD as a whole, he said.
Despite the higher oil bill for the U.S., Blumenthal said that estimates of the U.S. trade deficit were not being changed because increased manufactured and agricultural goods exports would offset the swollen oil costs.
Even though the U.S. is increasingly worried by the oil price situation, Blumenthal conceded that there were few available solutions to the problem in the short run. At the summit meeting, he said, the emphasis will be on co-operative efforts to boost alternative sources of energy, and to reduce consumption.
If the consuming nations are successful in this effort, he said, "I know of no reason why (OPEC) prices should increase (further). I see no evidence that OPEC doesn't know that it is not in their own interest to let prices go to the sky. If we do our part, I expect OPEC to see that."
The State Department official said that one possibility to be considered at the summit was extension to 1980 of the current international pledge to reduce imports by 5 per cent. The possibility of increasing the import-reduction pledge to a larger future will also be on the table.
But he stressed that there had yet been no agreement among the 7 major nations on precisely what might evolve from the summit. For one thing, theeprospective OPEC price structure won't be known until two days before the Tokyo meeting.
Both Blumenthal and the State department official said that there would be noting discussed at the summit that might be considered "confrontation." It's not a problem that can be handled that way, it requires cooperation," Blumenthal said.