PRESIDENT CARTER MADE the right and necessary decision when he closed the United States to Iranian oil. That step will impose certain costs on Americans, but the money and trouble will be well invested. The central issue in the Iranian crisis -- the issue that is going to last and get meaner -- is the use of oil as a means of political coercion. The Iraninas holding their American hostages in Tehran believe that they will prevail because they wield the power of oil. It is now up to the United States to demonstrate the limits to that power.
Americans can do without that oil. How will it work? Iran has simultaneously announced its own embargo against the United States, and presumably will sell only to buyers who guarantee not to let the oil come here. pCompanies will rearrange tanker routes, sending to Europe and Japan the Iranian oil that might have come here -- and bringing here other oil that might have gone there. Perhaps a little Iranian oil will leak through, but most of the Iranian flow will be replaced through swaps. The swap system works well but not perfectly -- meaning that the United States will probably get a little less oil than it had expected.
But the more important effect will hit the price. As Iran abrogates its conracts with the American companies, it is likely to put that oil into the spot market. The conract price is $23.50 a barrel, but the same barrel sold on the spot goes for about $40. Meanwhile, the American companies, scrambling to meet their own commitments to their customers, are going to resort increasingly to the spot market for the oil they need. As the spot price rises, it in turn is likely to induce the OPEC governments to raise their contract prices further when they meet next month.
In this country, two presidential candiates -- John B. Connally and Gov. Edmund G. Brown of California -- have offered thoughts about striking a political deal between the United States and OPEC to stabilize oil prices. To perceive the dangerous naivet'e of that idea, you have only to consider that the first oil crisis began with an Arab-Israeli war, and the second with the Iranian revolution. No political bargans can stand up under that kind of strain. Gov. Brown has also endorded the recurrent proposal to replace the oil companies with a government agency to negotiate all imports. Does he really think it would improve the stability of supply to have an official U.S. government agency undertake the purchase of oil from, say, Col. Qaddafi's Libya?
No political fix can bring back that lost era of steady flows of cheap foreign oil. The only remedy now is to cut back imports and make slack in the worldwide oil system. Some of the OPEC governments will then respond by cutting back production to preserve their seller's market. The importing countries, led by the United States, will have to cut back again. That, and nothing else, will work.