Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206
THIS PAPER IS SUBJECT TO CORRECTION
American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.
Many observers are of the opinion that OPEC's dominance of the world oil market will last into the next decade. It is more likely, however, that economic forces will gradually re store a more equitable balance between producing and consuming nations and that the natural friction within OPEC itself will limit the cartel's power. U.S. international oil policy should recognize the likelihood of such a development.
The purpose of this paper is to suggest an alternative point of view regarding the price of oil. The conventional wisdom today is that OPEC's near-monopoly control of the world's oil markets will last well into the 1980s, if not beyond. We challenge this point of view and suggest that a more probable outcome will be a gradual erosion of the cartel's position over the next few years. We do not foresee OPEC falling apart with earthshaking events of the sort that occurred when the cartel burst onto the world scene in late 1973 in the wake of war, an oil embargo, and quadrupled prices. Rather, we believe that natural economic forces will gradually work toward a reassertion of the market power of the oil-consuming nations between now power of the oil-consuming nations between now and 1980.
The policies devised by the U.S. and other Western governments to take advantage of this market shift will in large part determine the future viability of the cartel. Serious political considerations may suggest that the core Mideastern nations of OPEC may be vital to the security of the Free World, and that attempts to combat the cartel on purely economic grounds might well be contrary to our international political interests. While it is beyond the scope of this analysis to challenge that position on political grounds, we would suggest that the ability of the cartel to impose monopoly prices on the world's oil markets is an equally serious consideration on economic grounds.
The world has not really adapted to the price of international oil maintained by the strength of the oil cartel. The mounting international debt of many developing countries and of some industrialized nations is one important symptom of the disruptive nature of high oil prices. As long as large OPEC surpluses continue, there will be an ever-increasing burden of deficits in the oil-importing nations which must be financed through the international monetary system.