Sheik Yamani, the oil minister of Saudi Arabia, is a master in the art of communication. For years, he has managed to convince otherwise sophisticated reporters and editors that his country, on behalf of its friends in the West, has exercised restraint in oil pricing.
In a speech to the Foreign Policy Association in New York last week, Yamani spoke of the "sacrifces" his nation is making to keep the United States happy, among them "forgoing $1.9 billion annually in favor of the U.S.A." by maintaining oil prices $4 per barrel lower than the rest of the cartel.
The fact is that the Saudi have a very clear and logical strategy that dictates their oil production and price levels. The $32 Saudi price (compared with $36 for the rest of OPEC) and their production at a sustained level of 10 million barrels a day have everything to do with the Saudis' own best economic interests, and nothing to do with keeping the United States happy.
The most significant development in the world energy market is that oil-producing capacity now exceeds demand, which has been slowed by high OPEC prices. Last year, the Big Seven industrial countries cut oil consumption by 3 million barrels a day, and there is every indication this is the start of a long-run trend.
On "Meet the Press" April 19, NBC's Bill Monroe brought up the matter of the glut, which is weakening oil prices. Guest Yamani answered with a brilliant piece of propaganda later featured by the print and electronic media: "As a matter of fact, this glut was anticipated by Saudi Arabia and almost done by Saudi Arabia. If we reduce our production to the level before we started raising it, there would be no glut at all. So we engineered the glut and we want to see it in order to stabilize the price of oil."
He added that, if Saudi Arabia so chose, it could cut production of 10 million barrels a day to 6 million "and live happily at that level. And if you take away from the market 4 million barrels, then immediately, you will have a shortage. The price of oil will go up." As The Wall Street Journal quipped the next day, "How could anyone refuse to sell AWACS to a bunch of nice guys like that?"
The glut, of course, is a result of several factors, including a depressed world economy caused by high oil prices. In addition, there is the greater economic viability of coal, nuclear energy and other energy sources at these prices, as well as dramatic dividends from conservation. But no one on the "Meet the Press" panel called Yamani's bluff: A reduction of 4 million barrels a day in output would cost his government $48 billion a year (each 1 million barrels a day at $32 being worth $12 billion annually to the Saudis), threatening the viability of the Saudi economy.
The correct reading of Saudi oil production and price policy was given by Yamani himself, in Dhahran, Saudi Arabia, a few weeks ago. Then he has to respond to criticism from a countryman for not going along with the higher prices of other OPEC nations.
"We must not be moved in the direction that other [OPEC] countries are moving in," Yamani said. Saudi Arabia, he continued, is "in a race with time" to establish an industrial base. "If we force the West to invest heavily in finding alternative sources of energy, they will," he continued. "This would take no more than seven years and would result in reducing dependence on oil as a source of energy to a point that will jeopardize Saudi Arabia's interests."
There you have a blunt, clear and defensible statement of the Saudi national interest. It contrasts quite sharply with the nonsense Yamani fed to the Foreign Policy Association about a $1.9 billion "sacrifice" for the good old U.S.A. By keeping the price below the rest of OPEC, Yamani hopes to slow down the shift to alternative sources of energy. It is an intelligent economic decision.
On the other hand, as Yamani said in Dhahran, countries like Algeria, which by 1990 will run out of oil to export, want to push prices as high as possible to maximize their revenue in the short term. "If I were an Algerian," Yamani said, "I would no doubt wish that the price of oil today would reach $100 a barrel -- even if I brought the world economy down. Because no matter what happens to the world, they must buy this oil from me regardless of how much I encourage them to look for alternative energy sources. . . ."
But the Saudis and Yamani must take a different approach. Relative price moderation will extend and protect marketability of their oil into the next century. But just as the Saudis wish to decelerate the trend away from oil use and toward coal, natural gas and nuclear energy, it is in America's best interest to accelerate that precise trend, diminishing excessive dependence on imports.