0PEC, which stands for the organization of petroleum Exporting Countries, is a four-letter word synonymous with prodigious wealth, arbitrary power, and fear. The wealth is from the combined oil sales of its thirteen member nations, which exceeded $240 billion in 1981, a sum greater than half of the entire M-1 money supply in the United States; the power from the fact that its members control nearly two thirds of the free world's oil reserves; and the fear from the threat that OPEC might cut off this lifeline of energy, paralyzing the world's economy. No other organization, with the possible exception of the first Communist Internationale, has excited such concerns on a global scale.

The continued preoccupation with the potential threat of OPEC, however, distracted attention from the actual flesh-and-blood organization that inspired it. Despite a booming voice that has reverberated through the world's media for the past decade, it turns out that OPEC is a small organization. Its headquarters, in Vienna, is its only office: there are no branches or representatives elsewhere. Except for the alert squad of Austrian "Cobra" commando-, with submachine guns guarding the entranceway, the four-story building at Donaustrasse 93 in downtown Vienna resembles any other modern office building in Europe. It is built of gray marble, and glass, With a small parking lot in front, and almost identical buildings on either side, housing IBM and an Austrian hank. In 1982, twenty-two years after it was founded, 0PEC employed only thirty-nine persons on is executive staff. Not counting a few dozen Austrian secretaries and clerks and a handful of employees of OPEC's Fund for International Development (which awards grants and other largesse to countries in the Third World), this staff of thirty-nine men constitute the entire worldwide employment of OPEC. It included everyone from the secretary general to the press officers.

Last September, I was taken through the headquarters. The most prominent part of OPEC is the huge press auditorium on the ground floor, which is more than twice the size of its counterpart in the White House. It is surrounded by; state-of-the-art communications facilities for the press, on which no expense has been spared: a fully equipped color-television studio for taping interviews with OPEC spokesmen, telephones and Telexes for reporters' use in dispatching stories, a multilith printing press for churning out press releases, and a library of energy publications. There is even an in-house wire service, called OPECNA, which feeds announcements and other news releases to subscribing newspapers and radio stations. Aside from these services to reporters, OPEC edits a number of glossy publications-including a monthly OPEC bulletin, the annual report, and illustrated briefing books. Behind the auditorium, through a locked door, is the computer room, which contains the institutional memory of OPEC. The computer itself is a medium-size IBM 4341, installed in 1980 and programmed by a group of American consultants from the University of Southern California in Los Angeles. The air-conditioned room is crammed with metallic cabinets storing the hard disks of computer memory. In the center is a control console manned by a Viennese operator. When he initially attempted to demonstrate to me the computer.- graphic abilities, the screen. after an embarrassingly long hesitation, came up blank. "This is of course not the top-of-the-line IBM," he said apologetically, re-entering the instructions on the keyboard. This time, the computer drew out a multicolored graph of prices for different grades of crude oil. The data was eight years old.

The operator explained that the computer has no direct telecommunication links to the oil markets and loading facilities. Instead, the data on prices comes by mail from Platt's Oilgram Price Report, an oil-industry newsletter published in Houston and New York. Each day, the prices published in Platt's have to be entered into the OPEC computer. Since there are only two programmers at OPEC, the information in the computer is often outdated.

When it came to displaying oil production from individual OPEC countries, the computer was out of date by the end of the month.-. "The problem is political," the operator explained: the OPEC countries refuse to provide the Vienna headquarters with data on how much oil they are producing and shipping. While some members, such as Indonesia, Venezuela, and Saudi Arabia, do furnish some data-after a delay of from two to six months-other members, such as Libya, Iran, and Nigeria, refuse to supply any figures at all on production and oil shipments. The result is that OPEC relies for much of its information about oil production on the International Energy Agency, in Paris, which was formed in 1974 by sixteen industrial nations, led by the United States, to ration the remaining supply of oil in the event of a dreaded OPEC cutoff. The IEA, in turn, relies mainly on the data of the United State Department of Energy, which, to complete the circle, draws its data from the reporting of the major oil companies. The picture of the oil market whirled out in four colors by the OPEC computer is thus not the product of the daily reality of oil loadings in the Persian Gulf or other ports of OPEC countries but the product of outdated statistics from oil companies which have been filtered through government bureaucracies.

When we left the computer room, Dr. Edward Omotoso, OPECs head of communications, wistfully acknowledged that the data base was "not perfect." He explained, "OPEC is not the CIA. We do not have satellites in the skies to count every oil tanker. We are not really that sort of an organization." He added, "We are not even a wealthy organization."

The annual budget for OPEC, like the size of the staff, seems far more appropriate for a small business than for what the press has often called the "most powerful group on earth." In 1981, the allocated budget was about $13.4 million (not all of it spent), most of which went for the cost of publishing OPEC's bulletin, books, and annual report. Saudi Arabia's share, for example (equal to that of the other members), was $906,250 in 1981, equivalent to the revenue it earned in about four minutes from its oil fields. "We have to watch even the cost of our long-distance telephone calls," an Iranian finance officer in OPEC said, referring to the infrequent communications with the oil producing centers.

"No one considers the OPEC assignment a plum," an OPEC executive explained. Although some employees see in OPEC a chance to escape authoritarian regimes and seek opportunities in the West, a job at OPEC is usually a detour from the path of advancement at a national oil company. And as it turns out, many OPEC technocrats (to not return to jobs in their home countries; they frequently go on to be oil consultants in Geneva or Paris. A number of OPEC executives were openly dissatisfied with the chaotic and unpredictable working conditions. "There are a number of vacancies on the staff," Dr. Omotoso said, as he reviewed the roster.

The position of secretary general, which rotates among the thirteen member nations every two years, is currently held by Dr. Marc Nan Nguema, a Gabonese civil servant. Dr. Nguema spends a considerable part of his time representing OPEC at energy seminars, conferences, and other ceremonial occasions. His Office of the Secretary consists of an assistant and a speech writer. (In December, the OPEC ministers voted against extending the term of Dr. Nguema after he was severely criticized by Saudi Arabia, Kuwait, and the United Arab Emirates for exceeding his expense account and travel allowance.) The de facto head of OPEC is the deputy secretary general, Dr. Fadhil J. At Chalabi, a fifty-three-year-old Iraqi lawyer and former minister who before joining OPEC, in 1978, ran OAPEC, a completely different group composed entirely of Arab oil producers. Directly under Dr. Al-Chalabi is the Division of Research, headed by another Iraqi, which employs more than half the staff. Its job is to gather and analyze data :about the international oil trade. The other major job of OPEC, also under Chalabi's control, is image-making. The products of its international PR machine, according to OPEC's last annual report, include the commissioning of a book on the history of OPEC,.entitled OPEC: An Instrument of Change; films with titles such as For the Benefit of All; subsidized OPEC Workshops for Journalists of the Third World, designed to "counteract misinterpretations and distortions in the media of OPEC's aims"; a commemorative OPEC postage stamp; and the daily release of "news" through the OPEC wire service. These activities aim at reversing the "brainwashing" of the media in the West.

Aside from research and public relations, the OPEC staff takes care of the more mundane housekeeping chores of the organization, including hotel and airplane reservations;. security arrangements; payroll, bookkeeping, and the hiring and firing of local clerks and secretaries. None of these tasks involves any control of the oil market.

"OPEC is merely a service organization for thirteen sovereign oil-producing nations," explained Bahman Karbassioun, an Iranian who has been associated with OPEC for nearly ten years. "We provide background data, such as the amount of OPEC oil that can be sold at a given price, to the ministers when they meet," he added. "All decisions are up to them."

The thirteen oil ministers of the member nations meet at conferences that, according to the OPEC charter, "are the supreme authority of the Organization." These conferences are convened semi-annually, and additionally whenever a majority of members requests an extraordinary session. It has held an average of about three conferences a year. At these conferences, it is required that all decisions be made unanimously. Then decisions must be ratified by the thirteen governments before taking effect. No member, not even if it is in a minority of one, can be forced to abide by a decision to which it did not explicitly agree. There is, therefore, no need for a mechanism in OPEC for implementing,

In verifying, or even monitoring agreements. Compliance is completely voluntary Most OPEC decisions concern the base price for crude oil. Members can easily evade such price decisions through the simple expedient of altering terms-such as quality or transportation differentials thereby giving discounts or premiums.

Technically, it would be relatively easy for OPEC to enforce price decisions, by keeping track of the crude-oil sales: most oil is loaded onto tankers from only a dozen or so terminals. But members won't allow OPEC to measure the actual flow of oil from their terminals, for good reason: despite the appearance of unity, they are all competitors for shares of the world market. Current oil sales are considered by many OPEC states to be the equivalent of state secrets. Saudi Arabia declared in 1980: "We refuse on principle to even discuss the subject of production, which concerns us alone. Our decisions on production derive from market conditions and Saudi Arabia's international commitments,"

When the oil ministers meet at OPEC conferences, they therefore have no choice but to depend on their own national data. Moreover, some ministers are more equal than others. Sheikh Ahmed Zaki Yamani, the Harvard-trained oil minister of Saudi Arabia, often plays the lead role at these conferences. "Yamani's in charge of long-term strategy," one Iranian technocrat explained, and added, "It is no coincidence that the benchmark price for Saudi crude oil is the official OPEC price." From his perspective, Saudi Arabia attempts to use OPEC to force the twelve other producing countries to support its standard oil price. OPEC, with its minuscule staff and tiny budget, clearly is not the sort of cartel that has captured the public's imagination. A cartel, by definition, has one indispensable characteristic: it must be able to restrict the supply of the commodity reaching the marketplace. Yet, although individual OPEC members can cut back on the amount of oil that they supply , OPEC itself is powerless to interfere in such decisions. As Sheikh Yamani said at the last OPEC meeting in Vienna, in December, "Production decisions are made in Riyadh, not Vienna."OPEC not only lacks power to impose its will on recalcitrant members, it lacks the basic information needed to operate a cartel. At best, it is only a shadow of the former international cartel of oil companies that previously controlled almost the entire oil trade. This group, known as "the Seven Sisters," was a real cartel, with thousands of employees and unlimited funds. It is useful to compare the operations of a real cartel ,with those of OPEC.

The international oil cartel traces back to a grouse shoot at Achnacarry Castle, in Inverness, Scotland, in September of 1928, which was attended by the heads of the three most powerful oil combines in the world: Sir Henri Deterding, the chairman of Royal Dutch Shell: Walter Teagle, the head of Standard Oil of New Jersey (now Exxon); and Sir John Cadman, chairman of Anglo-Persian Oil (now BP). Under the pretext of engaging in sport, these three men conspired to eliminate competition in developing new oil resources for the world. The mechanism was the "as is" principle, under which all agreed to divide future markets among themselves according to the shares of the market they held in 1928. This meant that there would be no advantage in "destructive competition," as the companies put it, among themselves for new oil fields: whatever advantage one company received would be shared proportionally by the others. In a separate "pooling" accord, the three companies also agreed to share their oil tankers, refineries, pipelines, and marketing facilities with each other. As the membership of the cartel expanded to include the other major companies, it became known as the Seven Sisters. The cartel controlled oil production, refining, transportation, and sales in almost all areas of the world except the United States, which had strict antitrust laws.

The cartel's principal instrument of control was local consortiums set up to manage and develop oil fields in the Middle East, Venezuela, and wherever else oil was discovered. Each consortium was owned by members of the Seven Sisters in a ratio determined by the "as is" principle; each operated as an essentially nonprofit service entity, producing only enough oil to meet the requirements of its owners. To assure that supply never exceeded the demand for oil, the partners submitted "programs" specifying the oil they needed for five years, and the consortium set its exploration and development programs according to these requisites. If less oil was required by the oil companies, the consortiums would close down wells; or, if required by the country's law to drill for oil (as in Iraq), would drill in areas they knew would not yield any. The system proved so successful that by 1970 more than 90 percent of the world's exportable oil was being produced by consortiums in Iran, Iraq, Saudi Arabia, Kuwait, the United Arab Emirates, and almost every other oil-rich area.

From its refineries, tankers, and loading platforms, the Seven Sisters cartel had complete knowledge of all facets of the oil market. It also had the power to shut down entire nations that interfered with its concessions: when Mohammed Mossadegh, the prime minister of Iran, nationalized the country's oil industry, in 1951, the cartel denied Iran use of its refineries and tankers for two years, nearly bankrupting the country. Through its network of consortiums, the cartel had absolute control over how much oil was produced and shipped.

The strains that led to the breakup of the Seven Sisters cartel proceeded from a single issue: the division of profits between the international oil companies and the countries from whose territory the oil gushed. Until 1971, the cartel's consortiums gave the countries a set percentage~ 50 percent in most cases~ of an arbitrary price, called the "posted price," that the oil companies paid for each barrel. If an independent oil company attempted to buy oil, it would have to pay a much higher, "third-party" price. It was, of course, in the interest of the oil cartel to keep its posted price as low as possible, and make its profits selling refined oil. In 1970, for example, the posted price was $1.80, as it had been, with minor fluctuations, for twenty years; consumers in Western Europe paid the equivalent of $11 to $13 a barrel for refined oil.

The delicate balance that the cartel had maintained in the world export market for a half-century was irreversibly upset in the late 1960s by the unexpected decline in oil production in the Western Hemisphere. The United States, which had been almost self-sufficient in oil, became a significant importer of Middle Eastern oil. As the scramble for the available supply intensified, it became evident that prices would be forced inexorably upward. With prices for gasoline, heating oil, jet fuel, and other refined products rising in Europe, the countries that produced oil-notably Saudi Arabia, Iraq, Iran, and Libya-were not content with their share of the fixed posted prices; instead, they demanded at least part of the coming windfall.

The first cracks in the cartel's control came in 1970 in Libya, the one major exporter that had granted concessions to independent companies outside the purview of the consortiums. Under the revolutionary leadership of Colonel Qaddafi, Libya threatened to nationalize the independent companies unless they increased Libya's share. Eventually, the largest independent, Armand Hammer's Occidental Petroleum, acquiesced to Qaddafi's demands. Then Saudi Arabia, Iraq, Iran, and other producers in the Persian Gulf demanded that the consortium, grant them the same terns Libya had obtained. When the cartel acceded to these demands, Libya put pressure again oil the oil companies. and the cartel found itself caught in a ratchet between Libya and the Persian Gulf producers. both demanding more favorable terms. To solve this problem, the oil companies devised a strategy to force the oil-producing comities to negotiate as a single bloc. Because some of the producers were bitter rivals who refused to bargain together, the cartel sought a multinational organization under whose auspices they could negociate with the oil companies. In January of 1971. the cartel chose a small Vienna-based group, with a staff of nine, whose existence it had ignored for the past eleven years--OPEC.

A letter signed by the oil companies in the cartel began: "We wish to place before OPEC and its member countries the following proposal. . . "

OPEC hd originally been established in Baghdad on September 10, 1960, as an intergovernmental group to study posted oil prices. Its five founding members were Saudi Arabia, Venezuela, Iran, Kuwait, and Iraq. During its first six years, which went virtually unnoticed in the press, OPEC housed itself in Geneva and opened an "information office," which commissioned occasional studies on prices. It also admitted three new rnembers-Qatar, Indonesia and Libya. In 1966, it moved its office to Vienna because tho organization was offered diplomatic status there for its staff. Its main activity involved issuing proclamations declaring "solidarity" with the escalating demands of' the more rebellious oil producers, notably Libya and Algeria, which joined in 1969. The proposal to serve as a negotiating umbrella for the oil-producing countries was accepted by OPEC, as Henry Kissinger notes "with a vengeance."

In OPEC, the oil companies, found not only a convenient device to bring together feuding states but also a highly visible foe they could blame for the impending rise in oil prices. To negotiate as a single force with this new monolith, the oil companies obtained ail antitrust exemption for themselves from the Justice Department. OPEC was, ironically, finally by the real cartel.

Initially, the oil companies' OPEC strategy was successful. It produced the Teheran Agreement, in which the producing states, in return for a modest rise in the posted price to $2.18 a barrel and some favorable revisions in the concession term, accepted a five-year accord that would freeze oil prices. This OPEC agreement lasted, however, only months. Each country, ignoring the agreement, insisted that it had sovereignty over its oil prices. The "five-year" Tehran pact disintegrated into a free--for-all, and, one by one, the consortiums were nationalized.

Whatever hope the old cartel had of reasserting control over the oil producing nations ended on Yom Kippur of 1973, with the Egyptian invasion of the Sinai. The renewed war in the Middle East caused an oil-buying frenzy in Europe and Japan, as nations fought to build up their reserves of crude oil. Saudi Arabia and other oil producers adopted a policy of charging whatever the freight would bear. Within weeks, the posted price for crude had more than doubled, to,$5.60 a barrel. No OPEC control was involved: it was a war that permitted individual nations to raise their prices.

Another price explosion followed the announcement by Saudi Arabia and other Arab states, in October of 1973, that they were cutting back oil their oil production and embargoing shipments of oil to the United States. This cutback did not result from any OPEC decision, either. Indeed, many OPEC states, including Iran. Indonesia, Venezuela, Ecuador, and Gabon, actually increased production (and even a few Arab states in OPEC, notably Iraq and Algeria, did not reduce their production). It was almost exclusively an initiative of Saudi Arabia. Moreover, the Saudi decision to shut down 10 percent of the country~s oil production was not based entirely,on considerations of the plight of the Arabs. The Senate Subcommittee oil Multinational Corporations ascertained from testimony of American engineers who were responsible for operating the Saudi fields in 1971) that a 40 percent cutback in the giant Ghawar field was required for the installation of water injection equipment. If it had not made these cutbacks, the entire reservoir of oil would have been jeopardized. Jerome Levinson, the general counsel of the committee, writing under the name Peter Achnacarry, stated: ". . . the embargo saved Saudi Arabia from the embarrassment of having to explain supply shortages resulting from technical problems." By cloaking the cutback in a political purpose, the Saudis were able to induce other Arab producers, both inside and outside of OPEC, to join them.

In the wild price spiral that followed the Saudi shutdown, the official OPEC price was completely disregarded by other members. Iran and Qatar held auctions to determine how high they could raise prices. At its subsequent meetings, OPEC could do no more than ratify the prices that had already been established by a panicked market.

Conversely, when oil prices began to decline in 1975, because of the world recession, OPEC found itself powerless to stop its members from undercutting each other and competing for sales. Despite OPECs price declarations, the real price of oil declined by more than 25 percent between 1975 and 1978. The decline was reversed, not by any actions of OPEC but by another series of events in the Persian Gulf: the revolt against the Shah in Iran; a brief rebellion in Saudi Arabia; Iraq's invasion of Iran. In a matter of months, some 5 or 6 million barrels a day of Persian Gulf oil vanished from the export market. In 1979, importers feverishly bid up the remaining supply for their strategic reserves until prices reached $35 a barrel.

Throughout this roller coaster of falling and soaring prices, OPEC demonstrated little ability to affect or even moderate the actions of its members. Price agreements were totally ignored, and the idea of regulating oil production was pre-emptively rejected. In a comprehensive study of OPEC prices, Walter J. Mead, an economist at the University of California, found that "price and output policies [of members] appear to be determined independently of OPEC policy" He concluded that OPEC could not be considered a cartel in the light of this data, because "the essential ingredient to an effective cartel, coordinated control over output, is totally lacking." OPEC merely took credit for the results of current events.

Whereas OPEC may have proved to be no more than a paper cartel, one nation,Saudi Arabia, succeeded in altering the market by dramatically changing the output from its fields. After all, it was Saudi Arabia, not OPEC, that shut off oil during the Yom Kippur War. It was also Saudi Arabia that, without even consulting OPEC, arbitrarily reduced production in the midst of the Iranian revolt. And it was Saudi Arabia that later flooded the market to force other OPEC members to conform to its pricing policies. Yet, even though Saudi Arabia was the real manager of the world oil supply, statesmen preferred to blame an almost nonexistent organization-OPEC.

In July of 1979, President Jimmy Carter received a memorandum from his chief domestic adviser, Stuart Eizenstat, suggesting that public attention be focused on OPEC. Specifically, it counseled that "with strong steps we can mobilize the nation around a real crisis with a clear enemy-OPEC." Ignoring the determining role Saudi Arabia played in manipulating the supply of oil, Carter adopted the general strategy of blaming OPEC for the world's ills. Carter said, "I don't see how the rest of the world can sit back in a quiescent state and accept unrestrained and unwarranted increases in OPEC oil prices." Then, after castigating OPEC in a nationwide address, he read from his notebook a chilling assessment: "Our neck is stretched over the fence and OPEC has the knife." Carter gave this enemy a quality of omnipotence several months later, when he said that OPEC "has now become such an institutionalized structure that it would be very doubtful that anyone could break it down." OPEC was turned into an undefeatable foe.

OPEC made an especially convenient "clear enemy" precisely because it hardily existed. If a real country were chosen for this role, there would be real consequences. Consider, for example, what would have happened if Carter had substituted "Saudi Arabia" for "OPEC" in his denunciations. He would have to have depicted Saudi Arabia holding a knife to America's outstretched neck, an image inconsistent with continued military aid to that country. OPEC, on the other hand, with which the United States had neither trade nor foreign relations, provided an ideal diversion from reality. It also yielded a four-letter word for the press to use in headlines. Oil companies could put the blame for gas lines and soaring prices on OPEC, with which they had no commercial relations, without offending the countries on which they depended for supplies. OPEC served an even more important purpose for the oil-exporting nations. It gave powerless nations, which had the means neither to operate their oil fields nor to defend themselves, a dazzling mask. Specifically, for Saudi Arabia, which produces almost half of OPECs oil, it provided international camouflage for its oil policy. Just as the United States used the OAS as a mask for the embargo on goods shipped to Cuba in the 1960s, and the Soviet Union used the Warsaw Pact as a mask for intervention in Czechoslovakia in 1968, Saudi Arabia used OPEC to obscure its manipulation of the oil market. Such diversionary tactics were especially important to Saudi Arabia, since in 1973 its oil fields were almost entirely in the hands of American technicians and engineers, and its army, fewer than 3,000 men located at bases 1,000 miles away from the oil fields, was hardly in a position to defend the fields.

The competition within OPEC for shares of the oil market has been greatly exacerbated in recent years by the loss of nearly one third of the world market to interlopers such as Mexico, Great Britain, Norway, Malaysia, Russia, and Egypt. In 1973, when OPEC began its thundering rise to eminence, its members produced almost all the exportable oil in the world. In 1983, non-OPEC nations produce about 13 million barrels a Day, equivalent to nearly two thirds of OPEC's total. Mexico, which produces 2.9 million barrels a day, will export more oil than any OPEC country except Saudi Arabia; and Great Britain and Norway produce 2.7 million barrels a day from North Sea fields. As the available portion of the market shrinks, OPEC nations, many of whom are desperate for revenues, can compete only by lowering prices. As prices continued to slip day by day, it became clear to all concerned that OPEC could no longer even pretend to command prices to rise with any effect.

For nearly a decade, the OPEC mask has permitted Saudi Arabia to set prices for the world without having to take direct responsibility for its actions. As prices continue to fall, however, the facade no longer hides the bitter rivalries among members.. The paradoxical question "What are we fighting about, since we want the same thing?" applies to their dilemma. The answer is that they are fighting precisely because each wants a larger share of the world oil market. If, how ever, any one member succeeds in enlarging its share, it will be at the expense of another member. The OPEC members are, and will always be, competitors, not allies. While they may try to hide their fighting from outsiders by means of unenforceable paper agreements, it will persist until it is resolved by a price war.

Oil prices have risen twenty fold over the past decade. Part of this dramatic increase has been the result of the free market's attempt to reconcile dwindling production in America with expanding demand. Another part was. the result of the fears generated by wars in the Persian Gulf, which in turn led to frantic efforts to hoard oil in anticipation of an uncertain future. And partly the result of the manipulations of Saudi Arabia to cut back production at moments of world crisis. OPEC, though important as a mask, was no more than a convenient diversion that distracted public attention from the real causes of the oil crisis.