FOR YEARS, everybody has been calling OPEC a cartel. Now the world is going to find out whether that's correct. A true cartel is capable of enforcing production cuts to keep up its prices. That's what a cartel is for. The question of reducing production is now under discussion--rather tense discussion, evidently--within OPEC. Like most of the questions that confront OPEC, its answer depends entirely on Saudi Arabia.
There's nothing obscure about the cause of OPEC's troubles. Extraordinarily high prices are having the usual effect. Consumers around the world are making do with less oil, and producers outside OPEC are pumping more of it. OPEC, so far, has carried the whole burden of adjustment. Its production is down about one-third since the last great crisis in 1979. That's an enormous decline. The first stages of it were easy enough. By 1979 several of the OPEC governments were selling more oil than good conservation policy dictated, and they were not unhappy to choke back the flow. Then Iran and Iraq went to war with each other, with another sharp decrease in world production.
But as the need for reductions continues, it begins to threaten the development requirements of some countries, such as Nigeria, and the military ambitions of others, such as Libya. That's why the producers have begun to discount their prices in anxious efforts to maintain the flow of cash. And that's why all eyes turn toward the Saudis.
When they forced the rest of OPEC to conform to their price policy last fall, there was an implicit bargain that they would protect those prices from erosion. At the time, the Saudis lowered their production. But now the market is again heavily over-supplied. If Saudi production doesn't come down, and quite a lot, prices are going to keep falling. It's true that Saudi Arabia currently has far more money than needed, but it's also true that the country has become accustomed to a life that spends far more money than needed. That leaves the country's rulers with an interesting choice.
And what should Americans do? Turn up the heat, drive more and trust that OPEC's troubles will restore the dear old days of cheap oil? Hardly. Smart people will remember that the great oil price escalation of the 1970s resulted from three political events--an Arab-Israeli war, an Iranian revolution and an Iranian-Iraqi war. Smart people will keep it in mind that there may be more unexpected events ahead in the Middle East, the world's least stable region. Those people will regard lower oil and gasoline prices as the most fragile kind of good fortune, and they will keep shifting away from dependence on oil--knowing that, next month or next year, for utterly unpredictable reasons, the price may once again be moving upward again.