Nine major oil exporting countries announced today that they would forego a planned increase in the price of their crude oil, preparing the way for an end to the two-tier price system in effect since Jan. 1.
The two-tier system began when Saudi Arabia opposed a 10 per cent price increase instituted by the majority of the members of the Organization of Petroleum Exporting Countries. A second 5 per cent increase was scheduled to go into effect on Friday, and it is that price rise that has been canceled.
Saudi Arabia and the United Arab Emirates are now expected to increase their prices to meet the others, restoring unity to the oil cartel.
Oil experts in New York predicted that the combination of the two moves would mean a slight increase in the price of oil imported by Western nations.
If the majority of OPEC countries had instituted the second increase Friday, their current $12.70-a-barrel price would have gone up by 60 cents, equivalent to about 1.5 cents a gallon.
A six-line communique issued at OPEC headquarters here said that Algeria, Ecuador, Gabon, Indonesia, Iran, Kuwait, Nigeria, Qatar and Venezuela decided to forego the second increase "in the interest of unity and solidarity of OPEC."
Missing from the list were two other OPEC members, Iraq and Libya, leaving open the possibility that they might not go along with the move. While OPEC officials refused to comment on the intentions of the two, oil experts in Cyprus said that Iraq has already informed its customers that it would not increase prices.
The decision to end the so-called two-tier price system, under which Saudi Arabia and the Emirated charged less than other OPEC members, has been rumoured for weeks. The Middle East Economic Survey, a reliable gauge on oil matters, had predicted both rejection of the second increase and the subsequent Saudi price rise.
The 13 cartel members together produce about 30 million barrels of oil a day, with Saudi Arabia accounting for a third of the total production.
The American Petroleum Institute in Washington lists current U.S. oil consumption at about 17 million barrels daily, with imports accounting for nearly half.
OPEC nations provide about 70 per cent of the oil imported by the United States - or about 5.6 million barrels a day - with Saudi Arabia and the Emirates accounting for a third of that amount.
Saudi Arabia and the Emirated split with the other 11 OPEC members in a rancorous meeting in December and refused to adopt a two-stage price increase of 10 per cent on Jan. 1. Instead, the two countries raised their prices only 5 per cent and Saudi Arabia said it would boost its production to undercut the majority's higher price.
The resulting split was the first in the cartel since it became an economic force when prices were increase sharply after the 1973 Middle East war. Iran led those pressing for higher prices, while the Saudis began a major drive to limit the increase.
The decision in the Saudi's favor is likely to strengthen their hand in dealings with the West, and particularly Washington, on non economic issues. In the past, Saudi Arabia has linked its moderate oil-pricing policies to expected political gestures from the United States, specifically in the area of U.S. pressure on Israel to make concessions in Middle East peace negotiations.
(The White House said Wednesday night that the OPEC decision "is welcome. Any action to hold down price increases contributes to the wll being of all nations and to an international atmosphere conducive to increased cooperation.")
While the two-tier system appears to be on the way out, there are clear indication that the Saudis did not follow through on their threat to increase production to bludgeon other OPEC members into holding the price line.
Analysts have attributed this to what one described as "extraodinary pressure" from the Shah of Iran, whose treasury needs increased oil revenues.
Iran's oil exports declined from 6.1 million barrels a day, the December level, to 5 million after the two-tier price system came into effect Jan. 1. Most of this decline was due to the availability of lower-cost Saudi oil.
The apparent resolution of the price differences within OPEC will end this price advantage for consuming nations.