"OPEC makes it a virtual certainty that we'll have a recession." That's the blunt assessment of energy economist John Zamzow to the recent hike by OPEC oil producers in the price of crude. Prices rose this time an average of 18%. Worse yet, prices have gone up about 60% in the last six months, due largely to the cutoff, then limited restoration of Iranian oil, which led to a chaotic spiral in the cost of "spot" or non-contracted oil.
President Carter, in his gloomiest economic assessment to date now predicts that a recession is "much more likely than it was before" the June OPEC decision. The United States, he said, will probably have a "zero growth rate" for the year. Government experts who handed the President the gloomy news predict that by 1980 the 11-billion-dollar annual rise in the cost of imported oil will add two percentage points to the country's inflation rate, which now is running at a yearly pace of 14 percent. Experts also see a drop to two percentage points in the nation's growth rate and another 800,000 persons added to the jobless rolls by the end of the next year.
Worst of all, the U.S. and the rest of the free world economies are going to be sitting on pins-and-needles for a long time. OPEC will probably raise prices again by year's end. The dollar is likely to start slumping in value, after a brief upward rise, leading to increased OPEC price demands, since their product is priced in U.S. currency.
Even though Saudi Arabia has promised to "turn on the tap" more, she no longer has the political leverage to reign in prices with threats to flood the market. The market, after Iran, is simply too tight. Even the pledge by the industrialized countries at the Tokyo economic summit to basically hold the line on future import levels to the 1979 figures is expected to do little.
The knife-edge situation is further complicated by complex political disputes. The Administration feels it can't lift sanctions against Rhodesia's Zimbabwe primarily out of fear that Nigeria would cut off oil sales to the U.S. And over the weekend, the mercurial Colonel Kaddafy warned he might cut off all oil exports for 2 to 4 years, just because he didn't like the manner in which the industrialized countries reacted to the OPEC decision (they were supposed to applaud an 18% hike?).
The world simply cannot afford another "Iran." Yet there are other "Irans" which could occur at a moment's notice.
Most troublesome of all, of course, are the unresolved issues in the Middle East, specifically the Palestinian problem. In the coming issue of Newsweek, summarized before publication by UPI, Saudi Arabia's oil minister says the price of a barrel of oil could increase to $50 a barrel and an economic collapse worse than the Great Depression could strike the West if desperate Palestinians interrupt the flow of oil from the Middle East.
Sheik Ahmed Zaki Yamani said the United States must be prepared "to face the consequences" — a cutoff of Middle East oil — unless it acts to pressure Israel to allow a Palestinian homeland on the occupied West Bank of the Jordan River.
Yamani said the sudden loss of 3 million barrels of oil a day from Iran, during the revolution that deposed Shah Mohammad Reza Pahlavi caused economic panic.
"And if something happens in the area that causes a further drop of 3 million barrels per day, as it may, the price will quickly shoot up to $50 a barrel," Yamani said. "Most of the Western world's plants would then have to close and it would be worse than the 1929 depression."
He was asked what could cause another curtailment of Middle East oil, set at $18 to $23.50 a barrel at last week's OPEC oil ministers meeting in Geneva. "Look at what happened this week when the Israelis shot down five Syrian planes over Lebanon," Yamani said. "This sort of thing can escalate rapidly, The Israelis are looking for pretexts to avoid facing the inevitability of a Palestinian homeland and withdrawal from the West Bank. The Palestinians are growing ever more desperate, and I wouldn't be surprised if one day they sank one or two supertankers in the Strait of Hormuz, to force the world to do something about their plight and. Israel's obstinacy.
"This would block the channel through which pass 19 to 20 million barrels daily. This would make the present crisis seem like child's play. Either the U.S. can compel Israel to implement U.N. Resolution #242 and withdraw to the pre-June 1967, borders — or can't. If it can't then you must be prepared to face the consequences."
Yamani said if the industrialized nations reduce consumption by 4 million barrels a day in 1980, the price of oil would drop. But he said a consuming nation's cartel would be futile. "Be realistic," he said. "Don't start on something you won't be able to finish."
Western military occupation of Middle East oil-producing lands is equally senseless, he said. "Sabotage [by Palestinians] of a few key ports could half production for a couple of years," he said, "and then where would we all be? No, we must think positively. Be serious about cutting back, be serious about a Middle Eastern settlement and a new era will open up."
ON THE WORLD SCENE
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