The collapse of oil prices has triggered an economic chain reaction in the nation's oil fields, causing a sharp decline in drilling and threatening a permanent loss of production from thousands of low-volume "stripper" wells.

If it continues, the decline in exploration and production will make the United States as vulnerable to oil embargoes and escalating oil prices in the 1990s as it did in the 1970s, experts predict.

The "strategic flooding" of oil markets by Saudi Arabia since Labor Day -- the cause of the free fall in oil prices -- is intended to restore the Saudis' economic and political leverage over world oil, these experts say. How the Saudis might use that renewed market power is one of the critical imponderables of the new era of falling oil prices.

The sharp fall in drilling activity already is apparent, documented by the decline in active drilling rigs. The "rig count," a closely watched guide to oil exploration activity, is less than one-third the level of 1981, the peak year.

"It's approaching the all-time low since the 1950s," when nationwide rig counts first were made, said Charles J. DiBona, president of the American Petroleum Institute.

"We were just keeping production constant, using 4,600 rotary rigs," the level in 1981, DiBona said. The rig count is below 1,300 and still dropping. And even at current drilling levels, future U.S. oil production clearly will be curtailed, he said.

"You won't see it immediately. The wells you dig this year produce oil next year. We won't fall of the cliff this year, but when we do, we'll fall precipitously," he said.

A second blow to U.S. oil production comes from the closing of so-called "stripper" wells, which produce 10 or fewer barrels of oil a day. The nation's 452,000 stripper wells account for about 12 to 14 percent of U.S. production. But a deep, sustained drop in oil prices would make tens of thousands of these wells uneconomic to operate.

In 1984, about 15,000 stripper wells were abandoned, twice the number in 1980, and 1985 will show a dramatic decline, predicted S. Fred Singer, George Mason University professor and a senior fellow at the Heritage Foundation.

Once stripper wells are shut in, the loss will be permanent in many cases. Because stripper wells pump water in addition to oil, they must be plugged with concrete once oil production is stopped. Oil prices would have to rise to about $50 a barrel to make it profitable to redrill and reopen a "plugged" stripper well, Singer said.

Since the increased volumes of Saudi oil began arriving in U.S. and European markets last November, oil prices have dropped by about 50 percent on spot and commodity markets. The spot price of oil has fallen below $13 a barrel, and contract prices paid by most U.S. refiners are about $20 a barrel.

Phillips Petroleum Co. recently announced that it would shut its stripper wells that produce two or fewer barrels a day at the point when they require maintenance or other significant investment.

How many other producers will follow Phillips' decision cannot be determined. If prices settle at $15 a barrel or less, perhaps one-third of stripper oil production would be lost over the next year, according to a rough estimate by the federal Energy Information Administration.

William Skinner, technical assistant to the EIA administrator, said that EIA -- as well as most other experts -- still doesn't believe that the $15-a-barrel case is likely.

But Singer believes that the slide already has gone too far, and should be countered with a variable oil import fee designed to stabilize prices at about $22 a barrel.

"Saudi price manipulation can permanently damage the oil-producing potential of the United States," he said in recent testimony to the Senate Finance Committee, which is considering legislation that would set such a fee, equal to the difference between the world price and $22 a barrel.

Below $20, other production, including oil from expensive California wells, also becomes uneconomic. At $12 a barrel, Alaskan oil will stop flowing, Singer predicts. This would be easier to start up again than is the case with stripper wells, but there still would be a huge cost.

Within the industry, there is considerable disagreement about how fast existing production would be curtailed as prices fall. For instance, Texaco Inc. Chairman John McKinley told reporters in London last week that the impact of lower prices on existing North Sea production won't be dramatic. "In the North Sea, people will produce their oil as long as the cost of lifting the oil allows a positive cash flow," he said. And on that basis, production would continue in most cases even if oil prices dropped to $5 a barrel, according to some estimates.

Decisions about shutting in production are based on current prices, said Bruce C. Netschert, vice president of National Economic Research Associates Inc. But decisions on whether -- and how much -- to explore for oil and gas are based both on cash flow and on expectations of future prices.

As the decline has continued, oil companies have been reducing their exploration budgets. Atlantic Richfield Co. cut its budget for exploration and production in half, from nearly $3 billion in 1985 to $1.4 billion this year, the sharpest reduction analysts can remember.

Texaco and Amoco have announced 10 percent reductions in their capital spending, most of which goes for exploration and production. Standard Oil Co. says its exploration budget will be cut by 25 to 30 percent this year. Exxon Corp., which based its $10 billion budget for capital and exploration expenditures for this year on an assumption of $27-a-barrel oil, still is studying its next move, a spokesman said.

The impact has spread to companies that service the oil drillers. Lone Star Steel, a leading supplier of oil-drilling equipment, last month announced layoffs of 10 to 15 percent of its work force because of the decline in drilling.

"I think you're having the mirror image -- the opposite reaction -- to what happened in 1981. Then, everybody was rushing to drill," said Kenneth S. Miller of Shearson Lehman Brothers.

"Now, major companies are saying 'we're going to wait.' "

The Energy Information Administration recently tried to estimate what would happen if average oil prices remained essentially unchanged from 1985 through 1995, before accounting for inflation. In its scenario, the United States would need to import 10 million barrels a day, or 56 percent of the 17.7 million barrels of oil consumed in 1995.

By contrast, imports accounted for only 27 percent of crude oil demand last year. Such a sharp rise in import levels once again would make the United States critically dependent upon foreign oil supplies, as it was in 1977 to 1978, when imports supplied more than 45 percent of U.S. demand.

DiBona and API estimate that if prices stabilized at $15 a barrel and stayed there, it would take three or four years before the drop in U.S. production and the corresponding growth of imports from the Organization of Petroleum Exporting Countries put the cartel back in the dominant position it occupied in the mid-1970s.

Under that scenario, "Sometime between three and six years, we'd be back in the soup," DiBona said.

Higher prices, of course would delay or minimize that dependency. "If the oil stays at $22 a barrel, many of the larger, more secure companies will restore their exploration and production budgets later this year. That would keep the Saudis from becoming the swing producer," Miller said.

But that is not the Saudis' intention, he assumes.

Singer, too, is worried about the possibility of a permanent loss of U.S. production capacity, if a large percentage of the stripper wells are plugged. And "whether the Saudis intended it or not," he believes that is the ultimate effect of their present strategy. The important policy objective for the United States is to take steps to preserve that capacity, and to achieve price stability, he argues.

Singer believes that the "optimum" world price for oil eventually will revert to about $20 to $22 a barrel, as the Saudi squeeze on its OPEC partners and other producers forces them to curtail their production.

Most of the producing nations will be forced to go along with the Saudis, with the possible exception of Britain, he said. Singer predicts that almost every country soon will have a variable oil import fee to protect itself against volatile price movements.

But by that time, most of the U.S. stripper wells will have been abandoned prematurely, Singer fears. World oil prices will be back up in the $20s, but the stripper wells won't be reopened.

"This is an undeclared war," Singer said. He believes that the International Trade Commission should define the Saudis' "predatory selling" as a new form of "dumping," to which the United States could respond with a countervailing tariff that would bring the price up to $22 a barrel.

Alternatively, Congress could legislate an oil import fee or the administration could impose one based on the presidential authority to protect the national security under the 1962 Trade Act, he says. Singer would use any money picked up from the countervailing tariff or variable fee -- which he is sure would be a temporary device, fading away as the price resumes a more reasonable level -- to buy oil for the Strategic Petroleum Reserve. Alternatively, it could be refunded to consumers. President Reagan, however, has announced his opposition to oil import fees.

Netschert agrees that OPEC again will regain control of world oil markets, as a result of declining U.S. and non-OPEC oil production caused by lower prices. But it doesn't alarm him.

"Is this something to be viewed with dread? I think not," Netschert said in testimony before a House Energy and Commerce subcommittee last week. He argues that Saudi Arabia will not repeat the history of the 1970s, when OPEC's market power was used to escalate oil prices.

"The Saudis found, to their dismay, that a price of $34 a barrel was bringing in new offshore discoveries around the world" while reducing the demand for oil, Netschert said. He concludes that the Saudis want market stability. To get it, they will have to maintain oil prices no higher than $25 a barrel in current prices.

The United States could use a period of lower oil prices to bolster its security by adding to the Strategic Petroleum Reserve. But the oil fees Singer calls for would be a bad idea, in Netschert's view.