Is the official OPEC price for oil going to hit $20 a barrel? We could know the answer quite soon. The governing board of the International Energy Agency, the energy-coordinating body for the industrial nations, meets in Paris on March 1. On March 26, the OPEC oil ministers convene for an emergency meeting in Geneva. The results of those two meetings, and what happens in the three weeks in between, may well settle this most pressing question.
Pressures for the price jump are certainly growing in strength. With Iran politically chaotic and its oil production out, the world is drawing down stocks at a rate two million barrels a day faster than usual. Stocks are 65 days in the Western world, including tankers at sea, and declining rapidly. If Iran continues to remain down, this means gasoline shortages in the summer, and heating and industrial fuel shortages next winter.
But there is a more immediate danger: price. Spot-market prices in the gulf are finding tankers at -- it is now reported -- $23 a barrel, $10 higher than the OPEC prices agreed upon last December. The spot market, normally small, has become much more important with such a large chunk of long-contracted production not available. Companies are scrambling for supplies. Last week's collision between Canada and Exxon over a reduction in shipment is a foretaste of how politically difficult it will be to "allocate" cutbacks among different countries. Meanwhile, the OPEC oil producers are invoking force majeure to switch oil from longterm contracts to the spot market.
In such circumstances, it becomes hard for even "moderate" OPEC members to resist the pressures, internal and external, to capture in OPEC's official prices some of this surge. Most OPEC countries are already doing so, at least on production above their established regular limits. As in 1973, there is no spare oil production capacity that can be brought into play as a counter- pressure. Thus, as things stand now, a substantial price rise, decorated with a variety of self-serving justifications, is likely to emerge in Geneva.
These price rises would be disastrous for the economies of the western countries. Can they be avoided? That is the prime question on the agenda at the IEA meeting in Paris on Thursday. The members of the governing board will be trying to find ways, through reduced demands, to take the pressure off the market.
One way would be to trigger the emergency sharing arrangement, the establishment of which was the first priority of the IEA after the 1973 embargo. The arrangement works on the same principle as the ad hoc campany-administered system of 1973 -- "equal suffering, equally shared." It should be invoked, if a member can be demonstrated to have suffered a 7 percent shortfall. But to be effective, the problem must be dramatically clear to all concerned, since the arrangement was made basically to handle an abrupt shortfall rather than a sliding shortfall. At this point, the situation is probably too ambiguous for the triggering. And there is an understandable reluctance to rush such a demanding piece of machinery into operation when there is an alternative.
The alternative, and better course at this point, is for the Western countries to use the IEA forum to initiate immediate voluntary cutbacks in oil consumption -- suitable to their own national situation -- of up to 10 percent. A reduction in demand would close the two-million barrels-a-day gap and calm matters. It would cut the ground out from underneath the stock market. What trader or company would want to be stuck with $23-a-barrel oil when the price might settle back to $14? Such cutbacks would be the most effective way to blunt a sharp OPEC price rise.
The critical role is that of the United States, which uses half of all the oil in the industrial world and is the largest importer of OPEC oil. Our immediate target should be a 10 percent reduction in oil use -- that is, 1.9 million barrels a day. This is not a particularly difficult target ot achieve. There is a good deal to be done without fueling a panic in prices. Steps that would have overnight effect might include the transport of coal-produced electricity from the Midwest to substitute for oil-produced electricity on the East Coast; enforcement of the 55 mph speed limit; proper inflation of tires; temperature limits in public buildings; some moderate increases in the price or regulated price of domestic oil and gasoline, etc.
"All the other IEA countries are waiting for the U.S. lead," a heavily involved U.S. official remarked ruefully. And U.S. leadership means effective presidential leadership. A wounded Carter administration, its credibility tarnished on many grounds, may hesitate to commit itself, but the costs of not acting could prove politically grave for Jimmy Carter. It would hardly help him to be known as the president who presided over the second major OPEC price jump, who refused to get out of the way of the truck that everyone could see coming. His plans to fight inflation would be washed away. The concern as to whether anyone is in charge anymore would become more pronounced.
So perhaps the president, who found barely anything to say about energy in his State of the Union address a month ago, may still clearly formulate the problem and what to do about it for the nation. Of course, if Iran comes back quickly, such action would not be necessary, but who can predict anything about Iran with any reasonable assurance? Which means that there may be only a week or two to get the pieces of a preventive program in place. Fortunately, there are a number of steps that will rather easily, and without much pain, add up to the clear target -- 1.9 million barrels a day.