PATIENTLY and implacably, Saudi Arabia is flooding the world's markets with its oil. It wants a unified OPEC price schedule and a rule of restraint in future increases. Since the Saudis' idea of a proper OPEC policy would require most of the other members to reduce their prices, you can see why the meeting in Geneva is making only slow progress. But the Saudis don't argue. They just keep pumping.
It is an astounding display of economic power. The Saudis continue to produce over 10 million barrels of oil a day. The next largest OPEC producer is Venezuela, which has been running a little over 2 million barrels a day. OPEC production has fallen nearly one-fourth in the past two years, mainly because of conservation in the industrial countries. Since Saudi oil is OPEC's cheapest, the whole burden of this enormous reduction has fallen on the other members. The biggest losers have been Iran and Iraq, still stalemated in their desultory war, but hardly any of the other OPEC producers has been untouched by shrinking sales. The average world price has actually dropped a little, from a high of about $35.50 a barrel last February to perhaps $34.25 currently.
But the Saudis want more from their OPEC partners than a little price-shaving. They want a formal and explict agreement on their unified price. Why do they want it? The answers--there are more than one--have never been totally clear. As the largest of the producers, they don't like market disruptions, and they obviously have the largest interest in stable, long-term consumption. Since their kingdom has little capacity to defend itself in military terms, the Saudis want Europeans and especially Americans to see them not merely as good friends but in fact as crucial and indispensable allies.
But the other OPEC countries resist price reductions for more than narrowly financial reasons. Most of them have come to think of the rising price of oil as a symbol of justice, and the retribution for all the old grievances against the wealth and arrogance of the industrial nations. In most OPEC countries, it would be not only difficult, as a political matter, but perhaps even dangerous to go very far in dropping the price of oil. That's why the OPEC meeting is going slowly.
Sooner or later, the Saudis will probably get their way. The market pressure on the others is enormous. For Americans, it won't mean cheaper oil, since the compromise will include a higher Saudi price leading, probably, to a slightly higher world average. But it will mean greater stability and predictability of pricing--at least as long as there are no further wars, coups, revolts or upheavals in the oil-producing regions. It will also mean that OPEC policy is Saudi policy. But, for most practical purposes, that's already true.