A Single High Price

Since the oil-price spiral began 14 months ago, crude prices in the main producing countries have seemed a convoluted mess to Western eyes. At least three different figures could be cited as the price for a barrel of crude. Last week members of the Organization of Petroleum Exporting Countries, meeting in Vienna, voted (despite two bomb scares that emptied the hall) to do away with this arcane setup and start on Jan. 1 a new one-price system. For most of OPEC'S members, the move means yet another increase in their sky rocketing oil revenues, but this time with a sweetener for customers in the U.S., Europe and Japan; the price will supposedly not be raised again for nine months.

The foundation of the new plan is a Saudi Arabian government take of $10.12 on the average barrel of Arabi an light crude shipped out of the port of Ras Tanura; market prices and government revenues on other grades from other countries will be keyed to that figure. Buyers of oil from Saudi Arabia, Qatar and the United Arab Emirates will pay no more than now; those countries, in effect, went up to the new prices in November. But buyers of crude from the other ten OPEC nations, including Iran, Kuwait and Venezuela, will pay to the governments of those nations about 38-c- per bbl. more, an increase of roughly 4%. The new price will remain in effect until next Sept. 30 -- meaning, the producers say, that as inflation continues in consuming countries, the price of oil relative to other prices will actually come down.

Old System. The new system replaces one that has seriously misled Western consumers about oil prices. Since producing countries now usually own part of the Western oil companies that operate within their borders and thus part of the oil produced, there have theoretically been three prices for crude. They are 1) a "posted" price, which has grabbed headlines but is a hypothetical figure that nobody actually pays, 2) an "equity" price, computed on the basis of the posted price and composed of the taxes and royalties that companies pay in order to ship out their share of oil, and 3) a "buy-back" price, representing a higher percentage of the posted price, which oil companies pay in order to buy from the government the share of production that the government owns.

Oil-owning governments rightly claim that this system has disguised the profits that Western companies make on their operations. It is also certain that the system has disguised just how great have been the price increases forced by the OPEC governments. During 1973, they quadrupled the posted price of oil, and they have not changed it since the start of 1974. But this year they have sharply raised equity and buy-back prices. The Saudi government's take of $10.12 on Arabian light shipped out of Ras Tanura, for instance, has risen about 27% this year, though posted prices have been unchanged (see chart); since October 1973, the take has multiplied not four, but five times.

The new single-price system reflects the belief that oil-country governments will soon take over lock, stock and barrel the wells on their territories. Principal reason for that feeling: Saudi Arabian and American owners of Aramco, the consortium that pumps out Saudi oil, recently agreed in principle on a 100% Saudi buy-out (the Saudis now own 60%). Negotiations in London on the details of the deal recessed last week, but it seems likely that in the end the Saudi government will have paid some $2 billion for Aramco. The chief questions still to be negotiated are how much the Saudi government will pay Aramco's American owners (Exxon, Mobil, Standard Oil of California and Texaco) to manage and operate the wells and pipelines, and how much of the crude that is produced the Saudis will guarantee to sell to the American companies.

Once the Saudi takeover is complete, Qatar, Kuwait and the United Arab Emirates are also expected to move to buy out 100% of Western oil operations. The governments of the producing countries will then become the sole marketers of all the oil pumped out of their lands, making imperative a conference between governments of oil-burning nations and those of oil-pumping nations. U.S. Secretary of State Henry Kissinger has proposed a meeting of industrialized and oil-producing nations; French President Valery Giscard d'Estaing wants to include underdeveloped countries that also depend on oil. The producers now appear to favor the Giscard d'Estaing proposal. In preparation for such a gathering, the OPEC delegates in Vienna last week voted to meet next month in Algiers to set up a Summit which will consider proposals. They are likely to include the idea of tying the price of oil, come next fall, to the rate of inflation in consuming countries: the higher Western prices for non-oil goods would go, the higher still the price of oil would shoot. Western governments would be well advised to prepare themselves carefully. The OPEC governments have given abundant proof that they are shrewd and hard bargainers.

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