ustxtxb_obs_1976_08_20_50_00016-00000_000.pdf

THE TEXAS OBSERVER 600 W. 7th, Austin, Tex. 78701 During this embargo petroleum shortages became critical in the U.S., and Americans were confronted with the spectacle of long lines outside many service stations. At that time, some members of Congress made headlines by claiming that U.S. oil: companies were deliberately withholding gasoline so as to drive up prices. Those members of Congress ignored several facts: that the Arab members of OPEC have control over the oil within their borders, and if they choose not to sell that oil, no one can force them; and that OPEC members raised the price of their crude oil more than 400 percent, and this was the reason for the worldwide jump in gasoline prices. Another fact which must not be ignored: the U.S. is now importing more than 40 percent of its oil. Because demand for gasoline and other products is rising, our oil imports are , rising, thus giving OPEC the potential for even more economic mischief. But meanwhile we must cope with the backers of divestiture, who claim that if you fragment the overseas operations of U.S. oil companies, you will also fragment the “fragile unity” of OPEC. This claim was extensively discussed during recent congressional hearings. Witness after witness testified that the idea is preposterous. Richard G. Darman, assistant secretary of the Department of Commerce, said, “In simple common sense terms, it is difficult to appreciate why a proposal to weaken the set of parties on one side of a transaction should increase their leverage in relation to the untouched set of parties on the other.” Barry-J. Shillito, former assistant secretary of defense, said that if Congress splinters the oil companies, “we would be further fragmenting our negotiating capabilities while OPEC concentrates theirs. This can only lead to higher and higher prices from OPEC countries.” Frank G. Zarb, administrator of the Federal Energy Administration, said, “There is no evidence that U.S. petroleum companies, weakened and reduced in size by divestiture, could bargain with the OPEC cartel more effectively than the larger, vertically integrated firms, and thereby bring more secure supplies at lower prices.” Many university professors have criticized divestiture legislation, in testimony at congressional hearings and in published articles and studies. M. A. Adel 16 The Texas Observer man, professor of economics at the Massachusetts Institute of Technology, wrote in The Washington Post, “Vertical divestiture would keep Congress and the oil industry busy for years, spinning their wheels, going no place, postponing investment decisions [and] losing a chance for active defense against the [OPEC] cartel. . . .” Profs. William A. Johnson and Richard E. Messick of the Energy Policy Research Project at the George Washington University report in a study, “Divestiture would play into the hands of OPEC. . . . These countries would be better able to bring pressure on the United States to reduce its support for Israel. This, in turn, could lead to a Middle East settlement far more favorable to the Arab cause than now seems likely.” Comments on this subject have also come from leading U.S. newspapers, the vast majority of which have come out against divestiture. The New York Times has said, “Divestiture might result in greater costs than benefits to the United Statesand to consumers. It might even strengthen rather. than weaken OPEC.” And ‘ The Washington Post has editorialized, “Breaking up the oil companies would not lower prices. The supporters of the bill generally concede this point. The price of crude oil is regulated in this country by federal controls, and abroad it is set by the Organization of Petroleum Exporting Countries. But, the argument goes, OPEC would not be nearly so effective if the big integrated American companies did not help it administer its prices and their allocations. “This line of reasoning is characteristically American, and it is dangerous. It assumes that people in small and backward countries could not possibly run anything as effective as OPEC without help from Americans. That reflects a gross misunderstanding of all that has happened in the past several years, and it brings to mind the similar error that a good many Americans made in 1956 when Egypt seized the Suez Canal. The Egyptians would shortly have to give it back, according to much speculation, because they were not up to the technical demands of running it. That speculation turned out to be wrong, and it is hard to think that similar logic applied to the case of OPEC will prove any more right.” Harry H. Hardy, American Petroleum Institute, 2101 L Street NW, Washington, D.C. 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