Hard-line Arab's oil 'weapon' swamped in . . . oil

The latest calls by Arab leaders urging the use of oil as a political weapon is producing more laughter than concern among many oil specialists. At the moment, the Organization of Petroleum Exporting Countries (OPEC) needs customers more than customers need OPEC oil. The international oil market has been glutted for several months now and there are no signs that the situation will change in the next few months.

Saudi Arabia is the one factor in the world oil scene that could quickly alter the demand/supply imbalance. But oil industry sources in the Middle East agree that only two factors could motivate Saudi Arabia, OPEC's largest producer , to do so:

1. In the short term, Saudi Arabia could drastically reduce its production. But the Saudis have made it abundantly clear that they will not do that until the other 12 OPEC members reduce their prices.

2. In the very long term, the Saudis could change their pro- Western oil Policy, if the United States blocks the sale of the Airborne Warning and Control System (AWACS) aircraft. At the moment, however, Saudi Oil Minister Sheikh Ahmed Zaki Yamani says it is a "wait ans see" situation.

In July, Libya summoned oil company executives to Tripoli to warn them about possible repercussions should they violate existing contracts by reducing their purchases.

"The executives laughed in the Libyans' faces," says Robin Mannock, nanaging editor of the authoritative Arab Report & Record semimonthly newsletter which keeps close tabs on OPEC.

Arab press reports add that many oil companies told Libya that they would buy Saudi Arabian oil for $32 rather than Libyan oil for $39.90.

Since then Iraq, (another OPEC member), Jordan (not an oil producer), and the Arab hard-line anti-Israel states in the "Steadfastness and Confrontation Front" have urged cutbacks in production and removal of petrodollars from American banks.

In a recent interview, Sheikh Yamani noted that some analysts had forecast that OPEC's market share would drop to less than 15 million barrels daily by the early 1990s.

"OPEC's share in the market fell from 31 million barrels daily in 1979 to much less than 24 million barrels per day this year," Sheikh Yamani told the Jeddah newspaper Arab News.

The Arab Oil and Gas Journal pointed out just how much some OPEC producers were hurting -- despite their calls for a boycott of exports to the United States.

Libya had the largest drop -- 70 percent -- between September 1980 and September 1981. Iraq's exports fell by 69 percent and Nigeria's exports by 53 percent. Kuwait's exports tumbled 51 percent. Algeria's declined 39 percent.

The only increases were marginal ones posted by Ecuador and Iran.

Saudi Arabia agreed to the emergency OPEC session in August largely on the understanding that the effect of the market surplus had convinced the others to lower their prices. Saudi Arabia has been campaigning for sometime now to get its OPEC colleagues to do that and adopt a long-term pricing policy based on incremental rises linked to such factors as Western inflation.

The August meeting was close to chopping the benchmark OPEC price from $36 to should have been $32. However, Sheikh Yamani -- thinking a $34 deal had been struck -- left the room for half an hour and came back to find that some ministers had changed their minds, Mr. Mannock explained.

The meeting ended in a stalemate; nothing had been done to soak up the glut. The Saudis said they would reduce their production by 1 million barrels a day to about 9.25 million in September as a "goodwill gesture."

Industry sources in the Gulf said the Saudis kept their promise Sept. 1 but that production would go up again in October.

At the August conference, Sheikh Yamani failed to drive his point home that the economic facts of life dictated that oil prices must come down. Sheikh Yamani tried to get across to his OPEC counterparts that it was not a sign of political defeat to decrease prices, Mr. Mannock said.

"For me, I do not think it is humiliating when I face an economic reality. I gave to do it," Sheikh Yamani said at a press conference after the Geneva meeting. "All important organizations in the world move their prices up and down according to the reality of the market. That is no political humiliation."

"It is remarkable that there is a surplus when what used to be OPEC's No. 2 and No. 3 producers, Iran and Iraq, are virtually out of the market," MAnnock commented.

The combination of high Saudi production, Western reliance on plentiful stocks, and lower Western industrial output could not create the current surplus , Mannock said.

During the summer, OPEC officials referred to an excess of 2 million to 3 million barrels daily on the market.

Normally oil companies stock up for the winter in August and September, but this hasn't happened this year, Mannock noted. The surplus is now estimated to be between 3 million and 4 million barrels per day, he added, noting oil companies will not need to restock until next year at the earliest.

After the August fiasco, Saudi Arabia will now hold out for what it considers the "ideal" price -- $28 a barrel, Mannock predicted. As long as the market pressure continues to bear down on the other OPEC members, Saudi Arabia may get its lower benchamark price and long-term pricing strategy in a year from now, industry sources agreed.

They also agreed, however, that stopping the sale of AWACS surveillance aircraft may guide Saudi oil policy down a different path, but not immediately.

"Certain princes who are less powerful now will become more powerful and lean towar [Soviet-backed] Syria and cutback in trade with the United States," Mannock said. "Their oil policy would be to sell exactly what they need to balance the books which is 5 mil lion barrels a day. There is a lot of internal support for that."

Four former American ambassadors to Saudi Arabia have warned that if the AWACS deal falls through, it would adversely affect Saudi oil policy.

"The Saudis would review their oil policy which has been immensely beneficial to the United States and the entire oil-consuming world," they said in a statement which noted that the Saudis did not need to produce as much as they do and could sell the oil for more.

When questioned, Sheikh Yamani did not rule out the possibility of such a politically motivated change. "This is an economic matter so far."