Back-Door Increase

Sheik Ahmed Zaki Yamani, Saudi Arabia's urbane Petroleum Minister, often professes a desire for the price of oil to come down. Last week he said that his government had indeed decided to lower the price by 40-c- per bbl., in a move designed to "take from the oil companies and give to the consumer." However enticing that Robin Hoodish remark might seem to suffering consumers, the consequences promise to be different from what they would expect. The cost of oil to the major companies --and to their customers--stands to rise about 50-c- per bbl., and the big winners will turn out to be the Arab producers.

The Saudi move, made independently of the Organization of Petroleum Exporting Countries and followed by Qatar and the United Arab Emirates, was announced at a meeting of six OPEC states in Abu Dhabi. For Saudi Arabia, by far the largest producer, the complex new policy works like this:

Forty percent of the Saudi crude yield belongs to the four members of Aramco--Texaco, Mobil, Exxon and Standard Oil of California. Sixty percent belongs to the Saudi government. The Aramco companies must ante up taxes and royalties on their share, calculated on the basis of a theoretical "posted price." It is this posted price that the Saudis reduced--from $11.65 to $11.25 per bbl. for its Arabian light crude. But at the same time, they sharply raised the taxes and royalties.

The Saudis sell almost all of their 60% share back to the Aramco companies, and dispose of a small part of it on the open market, mostly to European governments and companies. The selling price has been 93% of the posted price. Reportedly, the Saudis will maintain that 93% price for the open-market buyers, but will boost it to 94.8% on sales to Aramco. Doing this, the Saudis may win away many of Aramco's customers.

Lost Profit. The reason is that unless Aramco raises its prices to those customers, it could lose all the profit that Aramco companies now collect on Arabian light crude. Exxon, one of Aramco's owners, estimates its own profit at 34-c- per bbl. But if Aramco has to pay 94.8% of the posted price as well as the higher taxes and royalties, its costs per barrel could jump as high as 55-c-, to about $10.35. At a meeting of security analysts in Manhattan last week, Exxon Chairman J. Kenneth Jamieson said he was "somewhat mystified" by the impact of the Abu Dhabi decision. But he estimated that the rise in royalties and taxes alone would add 45-c- to Exxon's cost for a barrel of Arabian light. This cost, he said, "will have to be passed on to the consumer," and would amount to at least another penny added to the cost of a gallon of gasoline originating in the Persian Gulf. By passing costs along to buyers, Exxon and other companies would make the Saudis' open-market oil a tempting proposition for consuming nations. In applying pressure to Aramco's profits, the Saudis are probably also redoubling their efforts to take over 100% of their crude production.

The Saudis contend that the oil companies' profit is "excessive," and that the leap in taxes and royalties is only fair. In effect, the Saudis are saying that they are lowering posted prices, and that if consumers are asked to pay more, then the oil companies are to blame.

Yet if the increase to Aramco averages out to 50-c- per bbl., the Saudis will be taking in an additional $1.5 billion a year; this year their oil revenues will be around $25 billion. But offering lower prices to other buyers would do little to alleviate the petrodollar crisis, says Oil Economist Walter Levy.

The new price structure will be implemented immediately by Saudi Arabia, Qatar and the United Arab Emirates. Iran, also present at the Abu Dhabi meeting, has a plan of its own: the posted price would be replaced by a single price for oil, linked to the cost of a "basket" of 20 to 30 commodities on the world market. As inflation drove these commodities up, oil prices would also rise.

Few oil experts see the dissolution of OPEC in the Saudi-led move. But the development was a rare break in the cartel's ranks. The back-door price increase should above all remind consuming nations that high oil bills are a fact for the present, and should fortify their conservation efforts. Still, as consumers harken to Secretary Kissinger's contention that the cartel can be weakened through conservation and cooperation, the new dissent in the OPEC tent could be a faintly heartening omen.

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