The underlying facts about America's energy crisis sometimes appear to change before our very eyes. Who was not surprised, for example, to be told last year that Mexico may well have more oil than Saudi Arabia? And it was only six months ago that a worldwide "glut" of oil was a topic of discussion.
Then came the revolution in Iran, which suddenly reduced world oil production, triggering price hikes and disarray in world oil distribution. It dramatically underscored the continuing need to reduce our voracious consumption of oil. The balance of payments impact alone is devastating. Moreover, we have no certainty that our foreign suppliers will be willing or able to maintain current production rates. While oil production outside the Middle East has been increasing, we are far too dependent on countries with political axes to grind. And it should be clear to all that sooner or later steadily increasing demand must exhaust finite supplies.
In the midst of the growing sense of panic about world oil supplies, I asked the Library of Congress to help establish the magnitude and character of the current oil shortfall. The results of that now controversial study made a strong but limited point: World production of oil is virtually the same today as it was for the first nine months of 1978.
Although the world is missing five million barrels per day from Iran, approximately four million barrels per day of increased production are coming from OPEC nations, chiefly Saudi Arabia, Iraq and Nigeria. And another one million barrels per day of increased production are coming from Mexico, the North Sea, and from several less-developed countries. This leaves a cumulative production shortfall of 80,000 barrels per day.
Those figures are not disputed by the Department of Energy. Rather, DOE challenges the selection of the first three quarters of 1978 as a base period for estimating the current shortfall. As restated in a recent Washington Post editorial ["The Oil Shortage is Real," March 5], the central objection of DOE is: "Early 1978 was an abnormal period; the industry had overshot in building inventories and was holding down purchases while it worked off excessive stocks."
However, worldwide stocks in the first quarter of 1979 are estimated by DOE at 4.317 billion barrels, compared to 4.276 billion barrels in the first quarter of 1978. Similarly, unclassified CIA figures on U.S. oil stocks show 1.32 billion barrels at the beginning of 1979 compared to 1.31 billion barrels at the beginning of the base period. DOE says oil stocks were abnormally high in early 1978. But they are even higher now.
Therefore, if world production is virtually the same and stocks are larger, then the current shortfall must be attributed to 1) increased demand and 2) the oil companies' unwillingness -- for whatever reason -- to draw down stocks at the same rate as last year.
Clearly, demand has increased in the months since the Iranian cutoff and is responsible for part of the shortfall. Should the United States and the world experience an economic boom this year, energy demand would grow more rapidly and the supply shortfall would be increased But most analysts do not expect the growth pattern DOE optimistically projects. Unfortunately, an economic downturn now seems more likely.
On the second point, I do not believe that "corporate conspiracies" have engineered a "fake shortage." The actions of the multinational oil companies are normal for an oligopoly. Each company is primarily interested in protecting its share of the market. However, it would be unwise to assume that their natural desire to maximize this opportunity for a windfall profit will necessarily serve the public interest. As The Post stated in its editorial, the companies "are making matters worse" by "protecting their inventories" in a "tight and rising market."
To the extent that their decisions to build inventories have enhanced the atmosphere of shortage panic, multinationals have contributed to the current high prices in the spot market, weakened consumer resistance to higher prices and increased the probability that OPEC will move to a new price plateau at its March 26 meeting. As a result, I believe that the impending "price crisis" has become more serious than the current supply shortfall.
Secretary Schlesinger seized upon the current shortfall to build support for policies deliberately designed to produce much higher consumer prices, which he genuinely believes will help avoid more serious shortages in the future. However, the danger of raising prices too high quickly has been seriously underestimated, and the conservation benefits overstated.
Sharply higher prices risk simultaneous recession and double-digit inflation. The poor would be devastated; those barely making it now would be pushed beyond their limits. Yet once again, as in 1973-74, the oil companies would thrive, their profits inflated in direct proportion to the crushing economic burden on the country as a whole. In my opinion, our policy should reflect a greater concern for equity and a greater effort to avoid further drastic price increases.