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Thou Shalt Not Raise Prices

On the same day last week, President Ford, Treasury Secretary Simon and Secretary of State Kissinger—powerful and well-briefed men—described the world as teetering on the brink of an economic war that may pull down the structure of Western wealth. Although no shots may be fired, they warned, the war through its indirect impact on food production and credit arrangements may cause the death of millions and devastate national economies as effectively as did the armed battalions of World War II. Moreover, they said, this war is unnecessary, unprovoked and unforeseen even by those who have set it in motion. The aggressors in the Ford-Kissinger-Simon script are the members of OPEC, the cartel of oil-producing countries whose collusion has forced the price of foreign oil to rise to the unendurable level of $11 a barrel.

For nearly a year the United States has tried to manage the oil crisis largely by rhetoric, hoping for the best while experiencing the worst. Simon and Kissinger have met with OPEC leaders, and particularly with Saudi Arabian officials, to persuade them to lower prices or at least refrain from raising them further. In this they have failed. Since the end of the oil embargo this spring, OPEC has passed on two new price increases, and last week in Vienna OPEC announced that in the future prices may go up at regular intervals to keep pace with inflation in the West. Secretary Kissinger has quietly sought a “defensive” alliance of oil consuming nations that he hopes will present a counterforce to OPEC. This low-key policy hasn’t worked, won’t work, and may be coming to an end. On September 20 the 12 large oil consuming countries (minus France) tentatively committed themselves to an oil-sharing pact to be invoked in the event of any future oil embargoes. (Norway is expected to drop out because she doesn’t want to be obliged to share her North Sea oil wealth.) The pact, if approved by the individual governments (that will be a while, it hasn’t yet been submitted to the U.S. Congress) would automatically allow a member country to draw upon a common oil pool any time its imports drop below some agreed-upon level.

President Ford and Kissinger have now raised their criticism of the oil producers to an angrier pitch, and if words could harm the producers they would already be hurting. Kissinger remarked last week that the high cost of oil “is caused by deliberate decisions to restrict production and maintain an artificial price.” The President, more ominously, said that, “Throughout history nations have gone to war over natural advantages such as water or food, or convenient passages on land or sea.” Although Conciliatory phrases were added, the tone was harsh. And yet the drumbeat was for show; it was not the advance rumble of a counteroffensive that is on the march or even well along in the planning stage, and those with oil to sell probably know it.

CONSIDER WHAT it would mean were the thundering “thou-shalt-nots” to be translated into effective action. What would an economic war with OPEC entail? Several obstacles block a successful boycott by major oil consumers, the foremost being the skeptical and skittish French government. France has stayed away from all negotiations of the oil consumers’ alliance since February, and there’s little hope that she will change course now and join a boycott or some other threat directed at the Persian Gulf. The latest speculation has it that a counteroffensive by oil consumers might require in graduated steps 1) a refusal to allow OPEC countries to make large investments in the West, 2) dramatically raising the price of, and perhaps embargoing, arms to the oil states in the Mideast and 3) an agreement by the U.S., Western Europe and Japan not to purchase OPEC oil if the price does not come down. Not one of these decisions is likely to be made. France imports 83 percent of its oil from the Mideast and sells billions of dollars worth of armaments in return. The members of the defensive pact would have to find some compelling new arguments to make France cooperate, or add her name to the enemies list. At the moment no such prospect is in sight. Nor is it to be forgotten that two of the biggest oil producers—Iran and Saudi Arabia—now have on order $2.1 billion worth of arms from the U.S.

Even if the obstacles to cooperation among the industrialized nations were removed, the problem at home would remain: recession. The foreign oil producers may continue to raise prices as they have promised they will, or they may respond to the threat of boycott with a cutback in production as they did last winter. In either case their decision will play havoc with oil-dependent economies, particularly those of small countries (Italy, Britain, Japan) and poor countries (India, Pakistan, Bangladesh). The corresponding impact in the United States, given present policies, will be higher inflation, fewer jobs and a decline in industrial output.

It is in large part because the government believes Americans will not tolerate sacrifice that it has not proposed an oil boycott or a reduction in purchase from OPEC. If the government dare not resist pressures at home, how can it stand up to pressures abroad? No one suggests that the United States simply tell OPEC that its price is too high and cease to buy oil; that alone would accomplish nothing. It is equally unprofitable to rely on exhortation to accomplish what Washington is not willing to attempt by direct action. The oil countries, hearing themselves described as belligerents and famine-producers, are not going to see the logic of voluntarily taking a cut in income. That is a dream; the sooner recognized as such the better.

There’s another way to get at this problem that hasn’t been given a fair test by the government since the beginning of the oil shortage last fall: large-scale economic and industrial allocation of scarce resources, undertaken simultaneously with mandated age and price controls. An obvious first step is to cut back unnecessary oil consumption in this country, something that will not be done by lecturing. A second step yet to be taken is an overhaul of the tax laws to redirect consumption and to make allowances for the discriminatory burdens of inflation. It became clear last week that the Ford administration, through indifference, has lost the chance of getting a mass transit bill through Congress this year. A bill providing $11 billion for new transit systems and $800 million in emergency relief for those already operating is now considered dead. The White House did not try to save it. That is the reality that robs “Project Independence” of much of its meaning. All signs indicate that the private use of automobiles in America is rapidly becoming a threat to the health of the economy—not to mention the health of the people—and that mass transit must take on a larger share of transporting us. Car manufacture consumes millions of tons of steel (and how much energy?) each year that could be used more efficiently in railroads, buses and the construction of basic industries (including refiners). Had the government begun a crash program to convert some auto-building capacity to bus-making capacity during the embargo last fall, the outlook would be less gloomy today. But nothing has changed. Addressing a group of mass transit officials on September 9, President Ford told his listeners that under his administration there would be “realistic restraints on federal aid to transportation,” and that “the car will be with us for a long, long time.” Well yes, but in these numbers and in these sizes and used as indiscriminately as automobiles now are?

For a brief period last winter the government experimented with an alternative approach to the oil crisis: reduced consumption. People were told, ordered, to drive at 50 miles per hour, gas stations were closed on Sundays, thermostats were turned back. The experiment was short-lived. Our leaders turned from lecturing Americans to lecturing Arabs. In the first week of September more gasoline was used than in the same week a year ago. Again the government is preoccupied with increasing, not reducing and allocating supply, a policy that plays directly into the hands of the OPEC cartel. Until this country learns to make do with less oil, and use what it can get more intelligently, its words of advice to the Persian Gulf countries will not carry much weight.

This article originally ran in the October 5, 1974 issue of the magazine.