WELL, YOU CAN'T SAY that we weren't given plenty of warning of OPEC's latest increase in its oil prices. We-the United States, the West, the industrial world in general-learned five years ago that the power to set prices had shifted from the buyers of oil to the sellers. Five years ago it was possible for people to complain that they had been taken by surprise. But by this time the world has had due notice, as the lawyers say, that the oil-exporting countries intend to share their customers' wealth. The United States is currently importing nearly one-third more oil than it did in 1973, the last year of low prices. If this country keeps importing more and more oil regardless of price, the exporters are very likely to keep raising prices regardless of American grumbling and protests.
Paradoxically, the industrial world's only defense at present is its vulnerability. The only real constraint on sky-high OPEC prices is the damage that they would do to markets in which the OPEC members now have vast stakes. If price increaes hurt the dollar, they hurt the Saudis with their great wealth in dollars. If raising fuel costs throw the industrial nations into a recession, the victims ultimately include countries like Venezuela that are trying to diversity their economies and sell into the industrial markets.
All of the OPEC governments understand that point perfectly. But there is more to oil pricing than economics. The price of oil has become a powerful symbol, among the poor nations, of a new ability to redress grievances against the rich. People in the developing countries see clearly that the oil trade has become a gigantic funnel for redistributing wealth from the north to the south; like most people in most other places, they are less interested in the technicalities of the exchange rates and economics growth cycles.
The men who set OPEC policy could reasonably consider themselves caught in the middle between the real economic consequences of their decisions, and the steady emotional pressure from people at home to speed up the process of redistribution. It is a posture for which American officials can feel a good deal of sympathy, since theirs is the mirror opposite. They are caught between the realities of the market and the adamant insistence of most Americans on a system of price controls that is only increasing the danger to the American economy.
The Iranian contribution to this latest round of price increases deserves special attention. The Carter administration has been complaining that the increases were greater than they had expected. The explanation lies in the waves of strikes and demonstrations in the Iranian oil fields over the past two months. By reducing Iranian production to a fraction of its normal level, these strikes have left oil in short supply here and there around the world. Some of the middle men's prices were moving up briskly in response. OPEC is not prepared to see the brokers' and traders' profit margins widen at its expense. So up went the Persian Gulf prices. The point is, of course, that nobody-least of all the embattled Iranian government-arranged or even foresaw the scale of the eruption in Iran or its impact on OPEC policy.
The administration is now trying to decide whether to decontrol oil. President Carter seems to be slowly tilting against it, in response to the argument that decontrol will make inflation worse. That's wrong. For any perspective beyond a few months, by far the greater inflationary danger resides in continued controls. Keeping prices down encourages Americans to use more oil. Then imports rise, inviting OPEC to repeat the game. The process is a circular one that Americans can break only by reducing the amounts of foreign oil that they buy. But most predictions, including the administration's, indicate a steady rise in U.S. oil imports next year. In those circumstances, what do you think OPEC is likely to do at its meeting next December?