The Organization of Petroleum Exporting Countries, facing perhaps the worst crisis in its 25-year history, opened a crucial meeting here today groping for ways to bolster a sagging world oil market that poses grave economic problems for the cartel's member states.
The 13 oil ministers, searching in vain for a formula to manage prices and output, held preliminary discussions today but refrained from declaring an official session in the absence of any consensus about what to do.
"I suppose we will have to make some decisions," said Indonesia's Subroto, who is presiding over the OPEC meeting. The ministers are worried that failure to take substantive action this weekend will aggravate the slide in prices on the free-trade, or "spot" oil market.
Subroto said OPEC was pondering two different approaches: to stick to existing output and price levels while hoping that the market will break out of summer doldrums, or to try some kind of "new treatment" to improve discipline among members who have broken ranks in their desperation to sell oil.
After a period of rising income during the 1970s, OPEC now faces a bleak future of continuing surplus in oil supplies and dwindling consumption by western economies. Many OPEC members, committed to long-term development projects, have accumulated massive debts that are forcing them to find ever more desperate ways to sell their oil and meet the expectations of their people for economic betterment.
These unfulfilled expectations in turn have created a volatile political situation for OPEC leaders.
The beleaguered cartel faces the dilemma of either cutting prices radically to bring OPEC rates in line with the market or slashing oil output even further to dry up the persistent world glut. Both notions involve risks and sacrifices that OPEC members have shunned at past meetings.
OPEC's output now is only 14.5 million barrels a day, well below its production quota of 16 million. The low output has been achieved only by Saudi Arabia's trimming back to 2.3 million barrels, less than one-fourth its capacity. At least six of the 13 members still exceed their quotas, and the Saudis insist that they will not restrict output to such rock-bottom levels much longer unless other members respect the quotas.
Moreover, the cartel fears that further production restraint would only invite nonmember states to pick up the slack. As non-OPEC producers pump oil at full speed, they have eroded the cartel's market share to the point where OPEC members now provide only one-third of the noncommunist world's supplies.
The second possible solution to OPEC's plight -- a steep price cut to stimulate world demand -- also evokes strong resistance within the cartel. The oil producers are worried that western governments would simply impose an import tax, thus keeping gasoline prices high while pocketing OPEC's lost revenue. A price cut would also take many months, if not years, to work its way through consumer economies to heighten demand for oil.
In recent weeks, Saudi Arabia floated a proposal to reduce prices for its heavy grades of crude, but this suggestion met staunch resistance from light oil producers such as Algeria and Libya. Today Saudi Oil Minister Ahmed Zaki Yamani appeared to drop the plan, saying the ministers' task here was "to defend prices."
The cartel's indecision has been exacerbated by a political power struggle between the rich Persian Gulf sheikdoms and the poorer, more populous states.
Saudi Arabia argues that it is being forced bear the brunt of OPEC's troubles while other members cheat through price discounts, barter deals or excessive output. But the more populous countries, such as Iran, Indonesia and Nigeria, say their people are suffering far more from austerity budgets in a depressed oil market than are the gulf states with their sparse population and enormous wealth.
But the long slump has affected even the Saudi economy badly and the government has been forced to dip into its hefty bank reserves, estimated at $100 billion, to compensate for drastic cuts in oil revenue.
Last month King Fahd warned other cartel members to cease the rampant cheating on OPEC's fixed prices and production quotas or Saudi Arabia would abandon its role as the "swing producer."
If the Saudis raise production another 2 million barrels a day just to fulfill their quota, oil analysts predict that the swollen world supplies would drive prices down to $20 a barrel, perhaps even lower.
At that level, some OPEC members would face economic catastrophe from the combination of slashed income and huge debts. In addition, non-OPEC producers such as Britain and Norway, whose offshore wells are expensive to operate, would have to sell oil at a loss.
The Saudis have made similar threats before in a vain effort to elicit greater cooperation from non-OPEC producers.