THE OUTBREAK of fighting in southern Iran, around the oil ports, raises a dangerous prospect for the industrial world. The increases in the price of oil had already been accelerating for the past two months, not because of any great actual shortage but because of fears that there soon might be one. Governments and industries were already behaving like motorists, lining up early to get what they could without regard to price. Even if the gunfire in Iran can be put down promptly, it will give the industrial countries another unpleasantly sharp reminder that their supplies are not balanced on the knife's edge.
For the consumers of oil, the outlook is one of disruption and instability of supply as far into the future as the eye can see. No government of any major country has found a way to protect itself. Each faces the same dilemma. To cut back oil imports severely would depress employment and living standards. Not to cut back severly leaves the markets stretched so tight that every hint and rumor of trouble sends ripples of uncertainty and price rises around the world.
The various feverish schemes for breaking up OPEC wont't help. Before you assign OPEC the full blame for the price of gasoline, remember that it was the producers in the British North Sea who raised their prices by double the OPEC increment last January. In a market touched by panic, the OPEC pricing system is falling into disarray as member rapidly pile on their own surcharges. The cautious Saudis are still selling their oil at their version of the official OPEC price, $14.55 a barrel. But the Nigerians - the largest suppliers of foreign crude oil to the United States - are charging $18.50, which constitutes a 25 percent increase since March. The Algerian price is now $21, compared with $14.90 in March.
The spot price - the price for small lots of oil not traded under regular contracts - has become a signal. When it is high, it induces the exporting countries to raise the contract prices; otherwise they are accused at home of selling the oil below its true worth. When the contract price goes up, buyers perversely crowd back into the market because, dreadful though today's price may be, they assume that tomorrow's will be worse. The Carter administration has now unwisely aggravated this circular process by encouraging the oil companies to buy what they can on the spot market. The result has been to drive it to unprecedented levels.
How will it end? Probably cruelly, with much higher prices than today's and, as a direct and predictable consequence, a deep worldwide recession. The last surge of oil prices accounted for the great severity of the 1975 recession. It is entirely possible that by next fall this year's price increases will be as large as those of the 1973-74 crisis. Theoretically, that outcome could be avoided through the exercise of international leadership and restraint by the great industrial nations. But leadership and restraint are precious commodities and there, unfortunately, the shortage is the most severe of all.