World Glut Of "Black Gold"

"Weary not thyself to be rich ... for riches certainly make themselves

wings, like an eagle that flieth toward heaven" (Prov. 23:4, 5)

Solomon was among the richest of earth's rulers, yet by the Spirit of God he wrote these words of wise counsel which have so often proved true. Their truth has been dramatically demonstrated in recent years against the background of world oil markets and the fluctuating fortunes of countries producing "black gold". "Riches certainly make themselves wings!"

Usually referred to as OPEC, the Organization of Petroleum Exporting Countries has at present thirteen member states. Ten years ago OPEC countries produced 68% of the non-Communist world's crude oil, placing them in a commanding position in the world market. They used this advantage in 1973 to increase the price of oil fourfold, so bringing to an end the era of cheap energy, and imposing severe strains on the economies of nations which were dependent on large imports of oil. When the Iranian revolution reduced supplies from that country, OPEC again exploited the situation by increasing the price of oil from thirteen dollars to thirty-four dollars per barrel - a major factor in further deepening world recession. So the OPEC states amassed enormous financial benefit from oil resources.

Then for several reasons the picture began to change. Deepened world recession meant less demand for oil. Its higher cost encouraged diversion to alternative forms of energy. The free world's consumption dropped from 52.4 million barrels per day in 1979 to 45.5 million in 1983. OPEC's share of the free world's production fell to only 45% because several non-OPEC countries had vigorously developed their own oil resources. A glut of oil on the world market threatened to force down the price.

Against this threat OPEC worked to maintain the price by agreement among its member states to limit production and keep to an agreed fixed price. But the need for oil revenue led some member states to break their agreements, both by exceeding their production quota and by undercutting their own OPEC competitors. This led to severe strains within OPEC, resulting in stormy meetings of the oil ministers in May and December 1982 and again in January 1983. They seemed unable to achieve agreement among themselves. As he walked out of the January meeting, Saudi Oil Minister Yamani said, "There has been complete failure."

OPEC's failure led to widespread fears of a steep and sudden fall in oil prices which could have serious affects. For some countries (e.g. Mexico and Venezuela) have raised massive international bank loans to finance the exploration and development of their oil resources. If the price of oil falls significantly they could well default on these loans. This of course would be critical for the lending banks, especially if they have been recycling large deposits from other producers such as the Gulf States and the Middle East. While these states have ample reserves, they may well begin to call in some of the "petrodollars" deposited with the banks involved in large-scale lending. Sp even large financial institutions could find themselves in difficulties if a drop in oil prices affected them both as creditors and through withdrawal of deposits on a grand scale.

Other OPEC countries have undertaken vast projects on the assumption that oil prices would remain reasonably stable. Having entered into contracts for these projects they would be hard pressed by a large fall in oil revenue. Already some of these countries have had to impose drastic restrictions on imports. The seriousness of the position is illustrated by comparing the OPEC nations' overall international current account balance in 1980 (credit of 109 billion dollars) and in 1982 (debit of 18 billion dollars).

*Following the failure of OPEC to reach agreement in January 1983, the British National Oil Corporation announced in February that the price of North Sea Oil would be reduced from 34 dollars to 30.50 dollars per barrel-a move which will tend to encourage a more general fall in the world market price. This would, of course, be welcome as an incentive to recovery from world recession, but unless there's a gradual adjustment downwards the immediate problems could be traumatic for many oil producing countries and financing institutions.

Self-interest and ambition for power and prestige have been sadly evident in the story of rivalry for wealth from "black gold" during the past ten years. Present trends are proving how illusory that wealth can be. The counsel of God's word remains for our Christian guidance:

"Charge them that are rich in this present world, that they be not high minded, nor have their hope set on the uncertainty of

riches, but on God, who giveth us richly all things to enjoy" (1 Tim. 6:17)

See note on page 96

unknown | Jun 1983
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