Saudi Arabia, a colossus among the world's oil exporters and a key U.S. ally, is facing the stiffest challenge to its traditional leadership of the Organization of Petroleum Exporting Countries since oil prices began their upward spiral 10 years ago.
Today, the kingdom must deal with falling prices, but with the same task of trying to impose its authority in an increasingly fragmented and chaotic market.
This is due partly to the sustained oil glut. But it also stems from a bitter struggle inside OPEC over which members--the Arab states of the Persian Gulf or the African members and Iran--will set the pace of world oil prices.
Venezuelan Oil Minister Humberto Calderon Berti met in Paris with France's foreign and energy ministers Wednesday, the first such consultation of an OPEC leader with representatives of a consumer nation. The session came a day after Saudi Arabian Oil Minister Ahmed Zaki Yamani told French television that an OPEC accord on orderly price reduction was "imminent."
[Calderon Berti said the expected high-level OPEC session could be held "during the weekend or Tuesday at the latest," news services reported. The Venezuelan was to meet in London Thursday with ministers from Kuwait, Algeria, Nigeria, United Arab Emirates and Indonesia. By some accounts, Yamani also would attend. Yamani indicated in the interview that he favored a cut of $4 in the current OPEC base price of $34 per barrel. The spot-market price was hovering around $28.]
The price struggle comes as OPEC's share of the world market is declining slowly, accounting for little more than 40 percent of all exports. From a peak of 30 million to 31 million barrels a day in 1979, its production has fallen to less than 14 million.
Meanwhile, non-OPEC producers, such as Mexico and Britain, have emerged with as much price-setting influence as the 13 members of the once powerful cartel.
Pressures generated by the shrunken oil market have begun to take their toll on the attitude of all the major exporters, with each now as much concerned about refilling depleted national coffers as sticking to unenforceable international pricing agreements.
As OPEC and non-OPEC exporters battle to secure shares of the remaining market, it has become difficult for any one producer, even a giant like Saudi Arabia, to impose its terms on the others.
Long the kingpin in OPEC by virtue of its production capacity of 10.5 million barrels a day, Saudi Arabia has seen its authority eroded in recent years and has failed to impose its plan for a long-term pricing strategy to give stability, and predictability, to the world market.
Today, with its daily production at 4 million barrels or less, the kingdom seems less able to work its will--even with the backing of the other gulf Arab members of OPEC, Kuwait, the United Arab Emirates, Iraq and Qatar.
Last week, however, Saudi Oil Minister Ahmed Zaki Yamani has made it clear that he intends to prove once again to opponents that the kingdom is still the keystone of OPEC, with the power to force drastic price cuts on the price "discounters" in the organization who are trying to keep a margin of advantage.
The gulf Arab producers, he said after they met in the Saudi capital Feb. 22, are still "the principal power within OPEC." They stand ready, he warned later, to use "all our weight to guarantee that the others have to think twice before entering into a price war with us."
Yamani was referring to Nigeria, whose unilateral $5.50 price cut Feb. 19 has shaken OPEC, and to Iran and Libya, two bitter political enemies of the kingdom.
Saudi Arabia faces a strange combination of opponents in OPEC whose only common denominator seems to be their economic desperation and determination to sell as much oil as possible at whatever price they can get.
Iran looms as the most effective challenger to Saudi authority in OPEC. Its Shiite Moslem revolutionary leaders have made clear that they regard the Sunni Moslem Saudi royal family as their next target if they succeed in overthrowing Iraq's President Saddam Hussein.
Iranian Oil Minister Mohammed Gharazi told a press conference after the January OPEC meeting's breakup in Geneva that Iran had "succeeded in breaking the political power of Saudi Arabia, which stems from oil." Gharazi called Yamani's threat to cut Saudi oil prices "a hollow bluff."
Iran has been acting for some time as the wild card in the OPEC pack, violating the production quotas and selling oil far below the benchmark price of $34 a barrel to amass funds to finance its 29-month-old war with Iraq.
Its quota was first set at 1.2 million barrels daily, then raised to 2.5 million at OPEC's abortive January meeting. But Iran's actual production has stood at more than 3 million barrels for some time.
Iran has long had an ally for its anti-Saudi campaign in Libya, whose leader, Muammar Qaddafi, has been as explicit as Iran's leaders in calling for the overthrow of the Saudi royal family.
Libya, which like Algeria is having trouble finding markets for its high-quality, low-sulfur crude, has been offering big discounts on the official OPEC prices to find or keep customers. This eroded OPEC's pricing structure even before the current crisis, putting the lower-quality crude produced by Saudi Arabia and its Arab gulf allies at a disadvantage.
In fact, the production of the five Arab exporters in the Persian Gulf, has fallen from 17.7 million barrels a day in 1979 to roughly 7 million barrels today. This is due mostly to the glut but partly also to price undercutting, principally by Iran, Libya and Algeria.
Iran and Libya, the two main political "radicals" within OPEC, have welcomed another challenger of Saudi dominance, Nigeria--a loose cannon that could also blow up OPEC's game.
The Nigerian price cut threatens to upset OPEC's pricing structure by having the African producers of the highest-quality oil determine the spectrum of prices rather than Saudi Arabia, whose light crude traditionally has set the pace.
By reducing its price to $30, Nigeria has not only undercut the Saudi benchmark by $4 but also defied the rule that Saudi oil leads the way in pricing.
There are signs that even Iran and Libya are worried that Nigeria has gone too far in provoking Saudi Arabia. They fear it could lead to a price retaliation, that might ruin their game of selling oil at a discount based on the $34 benchmark price.
If the Saudis cut the base price to $28.50, for example, to keep the existing $1.50 differential between the Saudi marker crude and Nigerian oil, then the "discounters" would be under enormous pressure to sell for even less.
It is this threat that the Saudis and their gulf allies are holding over their opponents. If there were no accord within OPEC, warned the emirates' oil minister, Mana Said Oteiba, "the five gulf Arab states would slash their prices to a greater extent than they would have accepted within OPEC."
Significantly, among those traveling to Riyadh for "consultations" last week was Libyan Oil Minister Hassan Maghur, who earlier shuttled among the various gulf capitals trying to gather support for another OPEC meeting to sort out production quotas and prices.
Iran now has signaled its strong desire for such a meeting, as well as its readiness to accept a quota of 2.5 million barrels to help defend the $34 benchmark price.
The Nigerian attitude is still ambiguous. Its officials say they are ready to attend another extraordinary OPEC meeting, but they are demanding a wider agreement to include the major non-OPEC producers, notably Britain and Mexico. Nigeria is threatening otherwise to match any cut by the gulf Arab producers.
In an admission of their waning control, the Saudis thus have found themselves for the first time obliged to negotiate for support with non-OPEC producers to defend their traditional role as the price setters.
Underscoring the importance of non-OPEC producers in the tangled oil equation, Kuwaiti Oil Minister Ali Khalifa traveled to Paris last Thursday for "coordination talks" with his Mexican counterpart, Francisco Labastida, while another OPEC member, Venezuela, sent a delegation to London to see British officials responsible for setting North Sea oil prices.
Clearly, as Saudi Arabia's leverage has slipped within OPEC, so has that of the whole organization over the international oil market. It is premature to say if this is just a temporary phenomenon. But there are signs of a fragmentation with implications for Saudi Arabia and oil consumers.