Oil: An Agenda for the 1980s

A year ago, in reviewing the problems of oil supplies and Western security, I focused on the deplorable developments that had occurred during 1979, and emphasized the grave dangers involved if most of the oil-consuming nations remained dependent on oil from the Organization of Petroleum Exporting Countries, and were unable to achieve effective international coordination of their energy policies.1 It now appears appropriate to examine how circumstances have changed-or remained unchanged-during the intervening year, and to suggest lines of action, for both the short and medium term, that should be pursued vigorously.

Events since the spring of 1980 continue to make apparent the inherent dangers for the non-communist world of dependence on insecure sources of oil supplies. Despite generally abundant oil availability, OPEC nations raised official crude oil prices from an average of $20 per barrel in September 1979 to $32 per barrel by August 1980. In the following month came yet another major oil supply disruption, this time the result of the outbreak of war between two OPEC nations, Iraq and Iran. This war, which still continues, brought about a sudden reduction of approximately four million barrels daily (b/d) in available world oil supplies, and for a while threatened an upheaval of the same magnitude as followed the 1978-79 Iranian Revolution.

However, this time the major oil-consuming nations and their oil companies were in a considerably stronger position. Very substantial oil inventories had been accumulated in response to events of the previous year. Through the availability of these stocks, weak oil demand, and the prompt Saudi Arabian action of increasing its production to partially offset lost Iranian and Iraqi oil exports, the importing nations managed to avoid the disastrous spot-market competition which had done so much to cause the price explosion of 1979. Nevertheless, in December 1980 the OPEC nations imposed still further price increases, bringing the level of permitted "maximum" official sales prices up to $41 per barrel. And, by January 1981, the average of official OPEC sales prices had risen to $35 per barrel.