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Show JLX Un' The Salt Lake Tribune, Sunday, December 28, 1975 R I I What f i By J. W. Anderson Washington Post Writer WASHINGTON As the great debate over oil prices roars endlessly on, with great bitterness and futility, one needling question keeps recurring: What did all the experts and government pundits think was going to happen? Or to put it another way, why was in oil prices thf. tremendous run-u- p such a surprise? The reasons seem obvious enough in retrospect. Why shoUld the sudden shift of economic power to the Persian Gulf have been unexpected? There is no commodity to which governments and private comand panies devote a more beady-eye- d uriwinning attention than oil. Yet the world cabinets, companies, their customers and all were totally unprepared. Reconstructing the economic revolution of the past several years is a matter of some urgency, since peoples understanding of past events forms their po'itical judgment as to what we do next. The answers to these question are now beginning to be fairly clea., and they offer an illuminating commentary on the way in which governments or fail to deal deal with economic challenges. Costly Solution both of which ran out in late 1973. One circumstance alone made it possible for the Arabs to use the oil weapon, and for the Organization of Petroleum Exporting Countries (OPEC) to quadruple prices in the last three months of that year. By that time the Persian Gulf countries production had come to mean the difference between a comfortable world supply of oil and a catastrophic shortage. First the Iranians and then the Arabs repeatedly tried to use the oil weapon, through the 1950 and 1960s. Each time it turned out that they did not have a large enough share of the world's oil supply to be able to affect markets crucially. As late as 1967, w hen the Arabs responded to their defeat in the Arab-Israewar by embargoes and shutting the Suez Canal, the world economy hardly flickered. One large reason was the reserve capacity in the United States, still the worlds largest producer. American wells here were able to raise production immediately to . meet the emergency. production started to drop in 1971. The most accessible American fields were getting old, and the U.S. tax laws for years had encouraged the American companies to explore abroad. By 1973, with worldwide oil consumption soaring, there was no reserve production capacity anywhere in the world but the Middle East. li But-U.S- in the 1960s, the experts and anain government and in industry, lysts Vulnerability Clear in Europe and here consistently In this vulnerability is in retrospect, what was the misjudged happening oil markets. By the time the threat at clear enough. But neither governments last began to be apparent around 1972, nor companies saw it clearly until too any solution would have been enorm- late. Its not that the forecasts were ludged, or hidden. They were merely ously costly and disruptive. Governments here and around the world wrong. The analysts consistently unsiftvply froze and refused to deal with it derestimated the rate at which the at $11. The oil companies, not getting world was turning to oil. Oil consumption, in this country and the political support to u'hich they were accustomed, merely trusted to luck and around the world, was rising at asthfe docility of the Saudi government tounding speeds in the 1960s and early 1970s because, in comparison to most other things, it was getting steadily cheaper. From 1960 to 1969, in real terms which means in constant dollars, discounting inflation the year. For Japan the OECD expected oil use to rise 14.3 percent a year to 1970, the rate thereafter declining. The actual figure was 17.5 percent, and no decline. In 1968, the U.S. Department of "Neither government nor companies saw it (an impending oil short ugt') clearly until tin late. It's not that the forecasts were fudgetl. or hidden. They were merely wrong. The analysts consistent-l- y uinlerestimated the rate at which the world was tu ruins to oil." public around 1972. The old Office of Emergency Planning at the White House saw the U.S. stocks dwindling, and the statisticians there passed word upward. But by this time the 1972 presidential campaign was under way. It seems pretty evident that President like all of his predecessors Nixon did not want the word oil" even breathed during the campaign. Knowledgeable Democrats were aware of the rising trouble, but they were no more eager to get into the issue than Mr. Nixon. Their candidate. Sen. George McGovern, was making heavy weather of even the most traditional of the partys economic issues. For the Democrats, oil has always been a promptly fired Peterson, not specifically for bringing up this question, presumably, but because he was a man given to talking candidly about inconvenient subjects. Before the administration could take up oil and energy. Mr. Nixon was enmeshed in the Watergate scandal had no time or thought for oil in the remaining months of his tenure. President Ford came to olfice under the impression that inflation was to be the great economic challenge of his administration. Three months later the country was sliding rapidly into the the deepest recession of the decade largest single cause of which was, of course, the shock of the new oil prices. Now another presidential campaign is under way, and again both parties are As for the companies, they knew by unwilling to deal with oil in anything was trouble this time that serious but rhetorical and polemic terms. coming. Since any radical rise in prices Abroad, the handling of energy would mean a political explosion in the has been hardly any more policy solution the other that West, only they could see was to persuade Saudi Arabia satisfactory than here. The Europeans to keep raising its production. Saudi and Japanese, ever since World War II, production was then approaching 8 have lett oil and the Middle East mainly to the Americans. The French are a million barrels a day. The international companies hoped that it would agree to partial exception to the rule; but their efforts to cut out an independent go as high as 20 million for the coming decade to sec the industrial count ies position for themselves in the Arab into the 1980s and, they further hoped, world have yet to produce any tangible benefits for them m the oil trade. to the beginning of alternate techObvious Moral comfor for energy. Simply nologies The moral to the story is obvious. In parison. it might be noted that 20 million barrels a day is almost twice as the late 1940s and early 1950s, the e much as the record holder industrial countries under forceful and the United States produced in its American leadership established an oil supply system calculated peak year. Deferred List to fuel a massive economic recovery Irom the war. This system worked so Back in Washington, oil was apparsmoothly and efficiently that, in time, ently on the very long lists of matters that Mr. Nixon was deferring until after people began to forget about it. They the election. Immediately after the neglected it, and did not heed the early election the then Secretary of Comsignals of coming trouble. These counmerce, Peter Peterson, began talking tries consistently miscalculated their publicly about the dismay ing financial luture needs for oil and misjudged their implications of this countrys rising oil dependence on the Persian Gulf. even at the old low prices. imports (Copyright) r. party-splitte- price of oil actually fell. Fuel economy became irrelevant in the design of many kinds of machinery, notably the American automobile. Oil was cheaper than coal as industrial fuel, and coal mines around the world shut down. The economic reporting systems couldnt grasp the speed with which it was happening. Two economists, Joel Darmstadter and Hans Lansberg of Resources for the Future here in Washington, recently published a recapitulation of some of the key forecasts of oil demand. (Their study appears in the current issue of the quarterly Daedalus, which is devoted to the subject of the oil crisis and is, incidentally, the most informative and comprehensive review of the subject that Ive seen anywhere.) Consumption to Rise the Interior published a forecast that American oil consumption would go up 3.1 percent annually through 1980. Until the crisis it was going up half again that last. In 1970 the Cabinet Task Force on Oil Import Control, headed by the then Secretary of Labor George P. Shultz, published an even more influential calculation of this countrys future need for oil. It too turned out to be far too high in its estimate of production, far too low on demand, and dangerously wrong on the requirement for imports By 1975, the task force predicted, domestic production would be 12.4 million barrels a day, demand would be 16.1 million barrels a day, and imports would be 3.7 million barrels a day. As ii turned out, by only 1973 production had fallen to 10.9 million, demand had escalated to 17.3 million, and In 1966, the Organization for already imports were a staggering 6.2 million. Economic Development and CooperaBut these grossly low forecasts were tion the industrial countries central statistical and forecasting agency, only half of the explanation of the based in Paris calculated that industrial countries failure to guard Western European oil consumption their own prosperity. The other half would rise at a rate of 4.1 percent a year was political paralysis. to 1980. In fact, through the OECD The tirst real intimations of shorexpected oil use to rise 14.3 percent a tages began to be clear to the general Nixon all-tim- d Lav Off 2, 1 00 Firm Plans to Slash Copper Operations WHITE PINE, Mich. (AP) Copper Range Co. said it is curtailing operations at its copper mine and mill facilities in White Pine and laying off 2,100 workers on Jan. 4. LEARN THE BUSINESS TELEPHONE IN EIGHT NOTSQ'EASY LESSONS. Chester O. I :gn Jr., president and chief exe utivc, announced the layoffs in New York. The work force at the White Pine operation totals 2,900. Because our whole business Ensign said the curtailment was part of a larger plan for 1976 to reduce costs, conserve cash and preserve jobs in the face of a severely depressed copper market. Distance communications course called Phone Power that teaches you how to cut the cost of a sales call, how to reach more and better prospects, how to collect painlessly on overdue accounts, and more. This is how it works. We have marketing consultants called Phone Power Specialists who come to you and analyze your present operating methods. Then they can recommend and adapt to your needs one or more of the eight separate programs that make up Phone Power Then they teach your employees how to put Phone Power into practice The course is tuition-freWe're willing to make this investment because we know that Phone Power techniques will become so profitable to you that you'll just naturally increase your use of Long Distance. If you're like most people who have profited from Phone Power, you're ready and willing to modify your present business methods. You're contacting other businesses outside your own immediate area, and you're probably enjoying gross sales in million dollars If you excess of one-hal- f fit this profile, you and Phone Power were made for each other If you want to learn to use your business telephone like the sales force it was meant to be, we have just the school lor you Call us tor Phone Power It is presently anticipated that operations may be resumed around March 1, depending on the success of this plan and developments in the copper market, Ensign said. INSTANT CJ1TEK !EST EONQI3 ' is the telephone, we want to teach you how to use the business telephone profitably. So we've developed a Long Service operations will be continued at a reduced rate to work off a stockpile of smeltable materials, he said. 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