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<text> <title> (1970s) OPEC </title> <history> TIME--The Weekly Newsmagazine--1970s Highlights </history> <link 07555> <link 02401> <link 00174><article> <source>Time Magazine</source> <hdr> OPEC </hdr> <body> [Phase IV went into effect in August but had little effect on price and wage increases. All efforts to control inflation went into a cocked hat, however, when in October 1973 the Arab oil-producing countries united on a strategy to penalize those nations, especially the U.S., that supported Israel in the October War against Egypt and Syria.] (April 9, 1973) After long muttering vaguely about using their abundant oil as a "political weapon," the newly unified Arab leaders finally unsheathed it last week. They vowed to cut the oil production on which the fuel-short West depends and to raise prices sharply. The Arabs took three steps: 1) Ten Arab countries meeting in Kuwait decided that each month from now on they will reduce oil output at least 5% below the preceding month. The cutbacks will continue "until an Israeli withdrawal is completed, and until the restoration of the legal rights of the Palestinian people." 2) King Feisal of Saudi Arabia, the biggest Mideast producer, at first decreed a 10% cut in output. But by week's end, as the war seemed to be going against the Arabs, he announced a total ban on oil shipments to the U.S. Presently, 3.4% of the crude oil consumed daily by the U.S. comes from Saudi Arabia. Libya, Algeria and Abu Dhabi also announced embargos. 3) Six Persian Gulf oil countries lifted the posted price on crude oil (a theoretical figure on which royalties are based) by a stunning 70%, to $5.11 per bbl. It will keep Arab oil revenues rising--helping to pay for the war against Israel--even as fewer barrels are shipped out. The Arabs essentially have the West over a 42-gal. oil barrel. World oil use will more than double during the 1970s. Slaking that intense thirst requires continual swift increases in output, and there is only one place they can come from. The desert sands of the Arab nations hold at least 300 billion bbl. of easily recoverable oil, or 60% of the proven reserves in the non-Communist world. Merely by increasing production more slowly than the West desires--let alone reducing it--the Arabs could cause considerable discomfort. (November 19, 1973) Last week, showing new unity and clout, ten Arab countries announced that production for November will be slashed a minimum of 25% below the September total of 20.5 million bbl. per day. Though there has been promising progress toward a lasting settlement in the Middle East, the Arabs vow that they will continue their cutbacks and embargoes until Israel withdraws behind its 1967 borders and settles the Palestinian refugees' claims for land or money-or both. The implications of the oil warfare reach far beyond the Arab-Israeli dispute. Not since World War II has any event carried more potential for global change. Even if the Arabs were to reopen their taps tomorrow, the world would never again be the same. The sudden shortage of fuel has finally jolted governments into a realization that the era of cheap and ample energy is dead and that people will have to learn to live permanently with less heating, lighting and transport and pay more for each. To help the U.S. get through the winter with the least disruption, the President issued some immediate belt-tightening directives and requests. These aim to reduce the nation's consumption of oil by almost the amount that the Arabs are withholding. Nixon: Ordered public utilities and other companies to halt any plans for shifting away from coal and into oil as a fuel. Reduced the Government's allocations of jet fuel for aircraft, a move that will diminish the number of commercial flights by more than 10%. Called on homeowners to turn thermostats down to a daytime average of 68 degrees (v. a normal 74 degrees in American homes). Urged managers of offices, factories and stores to reduce energy consumption by 10%, either by using less heat or cutting down on working hours. Asked Governors to enact ordinances holding speeds to 50 m.p.h. (December 3, 1973) While the U.S. gets ready for the severe energy shortage, Europe and Japan are already suffering from a more acute case of oil deficiency. The Arabs have been successfully playing off one nation against another in the hope of preventing any coordinated retaliatory sanctions. After Common Market foreign ministers issued a self-consciously pro-Arab statement in Brussels, the Arabs last week exempted all Common Market members except The Netherlands from a further 5% cutback planned for December. West Germany sent envoys to Saudi Arabia in search of an arrangement that would allow oil destined for Germany to pass through embargoed Dutch ports. Other governments are preparing to ask for their own private deals when Saudi Arabia's Oil Minister Ahmed Zaki Yamani swings through major European capitals next week. Despite Arab efforts to reward friends and penalize enemies, nearly every industrialized nation is suffering. Even friendly France is getting 5% less oil than last year because the Arabs have not only slapped embargoes on some nations but cut overall production as well. Britain, which is also on the Arab's privileged list, is receiving 15% less oil than in 1972. Sunday driving bans have spread across the Continent from Copenhagen to Calabria. The Italian government last week adopted emergency measures that forbid the sale of gasoline in jerry cans (to discourage widespread hoarding), put curfews on stores, restaurants, theaters and even television stations, and limit drivers on the autostrade to a rather un-Italian 75 m.p.h. No nation has been hit harder than Japan, which imports nearly 100% of its oil, including 43% from Arab nations. Kowtowing to Arab demands, the Japanese cabinet last week called on Israel to withdraw from Arab territories that were occupied during the 1967 war, and threatened to reconsider its relations with Israel on the basis of "future developments." By government edict, neon lights are being turned off earlier along Tokyo's gaudy Ginza and the main streets of many other cities, store hours have been reduced and TV broadcasting curtailed. Japanese economists, many of whom had been predicting at least a 10% expansion for 1974, now say that the energy crisis will lead to zero economic growth in the next few months. (December 10, 1973) It is a whole new kind of season, fraught with inconvenience, deprivation and uncertainty. Americans are just beginning to realize that the winter of their sourest discontent is at hand. As December arrived last week, power cuts were beginning in the Northeast, energy experts in Washington were saying that gasoline rationing is all but inevitable, and filling stations across the country began a presidentially ordered routine of Sunday closings. Fewer lights, or none, glittered on outdoor Christmas trees, the first layoffs attributable to the energy crisis-of airline pilots, auto and construction workers-began, and pharmaceutical executives were actually warning of a shortage of lifesaving drugs that are manufactured by a process that uses petrochemicals. In some places, people already were in trouble. More than 50 truckers were stranded at the Davis Arco truck stop in San Jose, Calif., without diesel fuel to continue their trips. For lack of gasoline, some 25 New Hampshire towns were without police and fire protection, garbage pickups, road repair or school transportation. Fishing fleets were idled along the Gulf of Mexico, and newly harvested potatoes sat undelivered in Maine. Even among Americans who were not yet suffering, a quiet panic was beginning to germinate. Concluded Chuck Littlefield, a Los Angeles construction worker who has a daily 72-mile round-trip drive between his home and his job: "Gas rationing would put me on welfare." (January 7, 1974) It seemed like a lovely Christmas present to an energy-hungry world. At a meeting in Kuwait, the Arab oil nations unwrapped a surprise package of moves that added up, at least in theory, to the first easing of their 2 1/2-month-old oil offensive. They promised to raise production in January rather than slash it further as originally planned; output has supposedly been running 25% below September levels, but now the cut will be trimmed to 15%. The Arabs publicly maintained a total embargo on shipments to the U.S. and The Netherlands but added hard-pressed Japan and tiny Belgium to their list of friends. In fact, the Arabs appeared to be making further skillful use of their oil weapon. By announcing the 25% production cuts last fall, they had stampeded some countries into lessening political support of Israel and into swallowing price boosts of about 70%. Now, by publicly relenting on the production front, they seem to be bidding for Western gratitude--and for the acceptance of an additional, even more astronomical, 130% price hike that was announced just before Christmas. (January 14, 1974) It looked like a hand grenade, so the Albany, N.Y., station operator played it safe and assumed that it was a hand grenade. He gave the man who was toting it all the gas he wanted. Attendants elsewhere last week faced curses and threats of violence, sometimes backed by suspicious bulges in the pockets of jackets. When a huge bear of a man warned a Springfield, Mass., dealer, "You are going to give me gas or I will kill you," the dealer squeezed his parched pumps to find some. "Better a live coward than a dead hero," he said. Such incidents were not exactly common last week, but they occurred often enough, especially in the Northeast, to indicate an outbreak of a kind of gasoline madness. The New Year's weekend was the first time that many drivers became really desperate for gas. Many stations ran out of their monthly allotments as the weekend started and closed until they could get new deliveries after the holiday. Those that stayed open backed up long lines of drivers whose tempers sometimes exploded--especially if they found the pumps dry when they finally got to them. The gas shortage is sparking other types of deviant behavior. Flouting of the law is on the rise. In New York City, two gasoline tanks trucks, each loaded with 3,000 gallons, were hijacked within a week. Price gouging by station owners has become distressingly common. Miamians complain of having to pay $1 a gallon or being charged a $2 "service fee" before a station attendant will wait on them. At best, many gas station owners and attendants have become unapproachable to strangers; they will wait only on longtime customers. Some issue window stickers to the regulars; others sell by appointment only. Oregon Governor Tom McCall last week rolled into a Union 76 station only to be told by the manager: "Sorry, Governor, we're only selling to our regular customers." So the Governor meekly drove to the end of the line at a nearby station that was taking all comers. (March 25, 1974) Five months almost to the day after the Arabs unsheathed their oil weapon they decided to put it back in the scabbard--at least for a while. As expected, oil ministers of nine Arab nations conferring in Tripoli reached a basic agreement last week to lift the ban on oil sales to the U.S., though not the similar prohibitions on exports to The Netherlands, Portugal, Rhodesia and South Africa. But they left the world waiting to hear just when and for how long they would permit oil to flow to the U.S. again; according to one report, they will decide two months after the embargo's end whether to keep the oil flowing or cut off shipments once more. They were equally silent on how soon they would cancel a 15% production cutback and pump as much oil as they did before the Arab-Israeli war broke out last October--a matter of even more importance for U.S. and world oil supply and prices than the embargo itself. (October 14, 1974) The (price) increase has enabled the oil exporting countries to earn an almost inconceivable amount of foreign currency: about $100 billion this year. Unless prices weaken, next year's total will swell to $108 billion. By the end of this decade, the 13 nations of the Organization of Petroleum Exporting Countries (OPEC) could have a surplus of gold, dollars, pounds, marks, francs and other foreign currencies amounting to $650 billion; by contrast, the U.S.'s reserves are now $15 billion. Already the OPEC countries have been the recipients of by far the greatest international transfer of capital in history. Because many nations are becoming poorer while the oil exporters become richer--and much of the oil money is neither spent nor placed in long term deposits or investments--the huge transfer of wealth threatens to choke the international monetary system and strangle world trade. In chancelleries and countinghouses nearly everywhere, officials fear economic crisis leading to political instability. The evidence of this gloom was clear and plentiful last week. The price shares on the stock exchanges continued to plunge--not only on Wall Street but also in London, Paris and other major cities. In Washington, a pall of pessimism hung over the annual meeting of the International Monetary Fund and the World Bank. Representatives of more than 120 nations listened attentively to cataclysmic predictions that they would have dismissed immediately a year or two ago. </body> </article> </text>