IEWR: OPEC: CHAFING UNDER LDC CRITICISM

Created: 2/6/1980

OCR scan of the original document, errors are possible

OPEC, CHAFINQC CRITICISM^

OPEC relation* withless developed countries (LDCs) banover the past year, largely because lhe cartel has offered them only minimal help tn offset sharply blither oil Import bill* While Ihe debate within OPEC over assistance lo developing countries continues,ttle support within Ihe cartel forlarar>sraje effort. Thus. OPEC rr-laltona wtth oil-Import Irag LDCs are likely to worsen. H

Toe Impact of Oil Prices oa Developing Countries

Oil-importing LDCs have been hard hit b> sharply hither oil Importhe current account deficit of LDCS that air not mcmlwrt of the Organization of Petjoleum Fiportlnst Countriesreroainlnaj relatively conaUntillion8illion last year The increase reflected:

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The direct Impact of Incrr-ased oil prion, whichillion to the LDCdeflcIt _ -

The Indirect Impact of slower growth and higher Inflation In Industrialized countries, which lowered demand for LDC exports and raised prices of

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many of the gccdi the LOO Import

LDC Criticism

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The Increase In LDC criticism of OPEC partly reflects the oil cartels limited

- efforto past toil Import burdens of most nocvOPEC LDCs.PEC donors dlillion In economic aid-both bilateral and through internationalost of the aid went to Arab and non-Arab Muslim states. Some of 'hose recipients are net oil exporters. Moreover, annual OPEC lid actually declined8 because political relations wilhrime recipient, deteriorated|

Th- LDCs demanded rrussive Increases In OPEC development aid, bilateral grants to offset higher oil charges, guaranteed oil supplies, and. perhaps most Important, the offering of OPEC oil at lowc prices to LDCs than to Industrialized nations.of the Crouphe LDC caucus al the Unitedsaid that supply guarantee* would be meaningless without *ome_ offer of concessional flnar

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; ;i ome OPEC members were concerned enough about the criticism that surfaced jjto take limited action last year. For example. Inraq reportedly exempted Ijdcvelopln* counlrles from paying surcharges on oil In December. Iraqillion In Interest-free loans loew LDCs for oil price surcharges; India hmreceived at least half this amount. Venezuela subsidizes tbe oil It sells to Its 'Caribbean neighbors by grantingrebates In the form of soft loans, Saudi Arabia bas Informally guaranteed supplies to some political allies like Taiwan. No OPEC member I. giving major price breaksCt.|

OPEC Concerns

OPEC members hold sharply disparate attitudes on whether and how to deal with the demands of LDCs Among those that support additional Bid Initiative* are:

A few OPECexample, Libya andbelievecontinued criticism from other LDC* could undermine unity within the Croup ofnd Isolate the cartel

PECprobably believe the criticism could Jeopardize their ambitions lo lead the LDC caucus.

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Others, such as Venezuela, lhal brltev* new efforts by OPEC era Id reduce bilateral pressure lor aid from LDCs within ihrir regions.

Some cartelSaudi Arabia andmultilateral aid effort, arguing lhat aid shouldilateral concern, and that oil prion andshould not be linked. Saudi Arabia, for example. Is only lukewarm toward thef Increasing contribution! to multilateral funrkgjj||

'arse Caracas Meellnn

Largely through the efforts ofhost of the OPECoderate member,eading advocate of new Initiatives to aid LDC oilIssue of OPEC ltd to LOO was placed on the agenda for the9 OPEC meetlni In Caracas. Specifically. Venezuela wanted loupply guarantees, creation of an OPEC Development Sank, ard rmpcaJtlcni on oil exports thai would be tunneled to LDCs After ccraderable lobbying, the lint two issues were listed. This appears lo have been the first time OPEC officially agreed lo discuss ard al the ministerial lr*

Mainly because OPEC could not reach agreement on unified oil prices. Ihe final communique stressed the caitrl'a efforti to aid oil-Importing LDCs. The cartel'l members boosted contributions to the OPEC Special Fund6 billion,otal of SI billion, and agreed In principle to convert lhe Fundevelopment hank. OPEC also pledged lo give prfotilv lo supplying developing counlrtes_wlth oil for domestic use at the official prices charged by .ndlvldual members.

Utile Benefit to LDCa

Despite eitensive publicity heralding these measure*ajor OPEC effort, the net gain for oil-Importing dcvelnprw, countries will be small Moreover, the plans may not be fully implemented Although the Spevial Fund Increase I* double the contribution from the JunePFC meeting, it will not provide substantial near-trim bsUiKr-of-payments relkrf. OPEC Finance Ministers waited until January IBSO lo discuss allocating the fund, promlwd al thr9 meeting and some are reportedly balking ovrr the Car mibyb-jtk>ns further To dalr, the Fund has committed only aboutillion, of which less than one-half has been disbursed. |

OPEC's pledge to give LDCl priority of supply at official prices will helpLDCs who purchase oil al Ihe spot market price Nonetheless, the LDC oil bill will increase. More Importantly. OPEC mused to offer lhe LDCs oil al prices below those charged other contract customers Apparently in part because of Saudi opposillon. OPEC also refusedink future mcrraws in aid lo changes In oil prices

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The OPFC ministers may meet again this spring In sprclal session torude '

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pricing and In nvumior the supply situation Although it is unlikely lhat relations with developing countries will be on the agenda, some members will probably bring up the issue behind the scenes. Tbe President of VrnesueU plans to push for further OPEC action during his visit to the Middle East It

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OPECf relation, with oil-impor-ina; LDO will ecntinue to oVterlceate.progresseries ofCriticism of OPEC by developing countries is already spilling over into multilateral (on.mi Infighting among the Croup ofould stall prrparatiora for global energy negotiation' at the United Nations. If tbe Croup ofs unable lo present developed countries wjriia unified position, progrns In any Nuttb-Sotilh forum will be virtually

At tbe same lime. OPEC reluctance to offer sicnilicant troop assistance lo oil-importing LDCs Improves the relative position within the LDC cane as of those OPECasappear lo take LDC concerns seriously. The pressure on. and perhaps the influence of, regional oil eiporters lihr Indonesia.nd Nigeria will probably increase as netahborirtg LDCs look lo these OPEC members for some form of assistance.

Original document.

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