The world price of oil is falling, but not the sky: The world will be better off, not only because lower prices will be a dramatic stimulus to depressed economies everywhere, but because it signifies the effective end of OPEC power.

Compared to the official OPEC benchmark price of $34 per barrel, the spot-market price for Persian Gulf oil last week appeared to be in the $28-$29 range. Meanwhile, the Russians lowered their price by $2.15 to $29.35, adding to the downward pressures.

The Economic Report of the president, citing the stunning reductions in world consumption coincident with the rise in oil production outside of the Organization of Petroleum Exporting Countries, makes a point that only a few had dared to suggest heretofore:

All along, the OPEC oil "weapon" may not have been as formidable as once perceived.

The report reminds us that, when OPEC imposed its embargo on the United States and the Netherlands in 1973, consuming nations exchanged supplies, and neither the United States nor the Netherlands had to pay higher prices than anyone else: "Gasoline lines in the United States were caused by the U.S. regulations. Equally important, oil producers cannot impose large penalties upon others without imposing substantial revenue losses on themselves."

The concept that the potency of the oil "weapon" was heavily overestimated is significant. The belief that OPEC had life-or-death power over their economies tilted political attitudes in governments here, in Europe and Asia away from Israel, and toward the dominant Arab states in the cartel.

The conventional wisdom touted in the State Department and the CIA for most of the 1970s was that the world's dependence on OPEC oil, especially from the Middle East, would continue to rise until the end of this century or beyond. And our foreign policy has been based on that faulty hypothesis.

But as we now know, this was the wrong analysis: From a peak in 1979, when OPEC was supplying the Western World with one out of every two barrels of oil it consumed, there has been a steady decline. Today, the OPEC share is only one of three barrels, and dropping.

What OPEC did not anticipate was that the more than 1,200 percent increase in OPEC prices since 1972 (from $2.50 a barrel to $34) would set off an irreversible wave of conservation, substitution and new oil sources.

When OPEC met in Geneva at the end of January in an effort to preserve the $34 benchmark, it had already been forced to cut production from 31 million barrels a day to less than 17 million. The Saudis had gone down from a 10.3 million peak to less than 5 million barrels a day.

Yet, some oil analysts still fear that OPEC will find a way to reassert its strength. Others with more parochial interests fight a price decline, because over-ambitious drilling or oil-substitution projects--based on forecasts of $60 oil--are going down the drain.

A return to the kind of power OPEC exerted from 1973-79 is not likely, although there could well be political upheaval or more violence in the Middle East. Last week, Energy Secretary Donald Hodel told a Senate Committee flat out that the Persian Gulf has "far less" strategic interest for the United States than it used to, because an embargo wouldn't have the same clout that it did in 1973. Predictably, the State Department press office rushed out a statement saying that the Persian Gulf remains a region of "great importance" to the interests of the United States.

But the key point, as Hodel says, is that the United States today imports less than 5 million barrels a day, down from a peak of more than 8 million barrels a day. And our chief overseas supplier today is Mexico, not Saudi Arabia.

Economist Eliyahu Kanovsky, who had the genius to foresee the oil glut and the "Diminishing Importance of Middle East Oil" (that was the title of a paper he wrote about 18 months ago, and cited frequently in this column), pointed out that, even during 1974-78, when real oil prices were declining, the conservation/substitution movement continued unimpeded.

This is important to keep in mind, because the one legitimate worry about the latest prospect for a price drop is that cheap oil will cause a reversal of the instinct to conserve; hence, the argument goes, lower prices could result in renewed demand that would restore OPEC's power.

That has to be guarded against. But as Kanovsky wrote, "The governments and the oil consumers in the industrialized world are not soon likely to forget the oil shocks of the last decade, and they will probably undertake measures to ensure that their dependence on oil generally, and on Middle East oil, in particular, continues to diminish."

To be sure, some consumers may turn to bigger cars--but better mileage requirements have been mandated by law, and even the larger cars are more fuel-efficient than the smaller cars of a decade ago. As more post-1979 model cars come on the road, replacing older stock, conservation in the transportation area will grow. And fuel savings and substitutions made by industry look permanent.

The worry that Third World countries such as Mexico will suffer as oil prices drop should be brushed aside. Mexico is a special case, and will get additional loans from the International Monetary Fund. Many other Third World nations heavily in debt (like Brazil and South Korea) and pushed to the wall by high OPEC prices, are breathing a sigh of relief as the prices they must pay for oil come down. Such nations will find it easier to pay off their bank loans. Europe is a great beneficiary of lower all prices--so is Japan, so is the United States.

"As the London Economist commented the other day, "Cheap oil could be made as invigorating to tired Western economies as spinach was to Popeye."