The Prize: The Epic Quest for Oil, Money, and Power

by Daniel Yergin

For much of the year the Saudis had been steadily producing extra oil in order to counter the price increases. In 1979, OPEC production was back up to 31 million barrels per day, even with the Iranian shutdown—3 million barrels per day higher than 1978. Where was the extra oil going? Not into actual consumption, Yamani was sure, but into the inventories of companies fearful that future supplies would be further interrupted. At some point, the extra oil would tumble out of inventories and into the market, depressing prices. “Political decisions cannot permanently negate the divine laws of supply and demand,” Yamani would later explain. “Prices go up, and demand goes down, it’s simple, it’s ABC.” At the Tamanaco, Yamani moved into the top-floor Presidential suite, vacated at his request by the Venezuelan oil minister, and began to campaign for his point of view. The oil ministers met privately in the Saudi’s suite for what turned into a marathon. Yamani warned them of the danger as he saw it: that they were damaging their own interests, that demand was already showing signs of weakening, that the continuing price leapfrogging would bring a “catastrophe in the world economy.” A few of the other ministers agreed with him; the majority did not. When Yamani said that demand for OPEC oil would dramatically plummet and that they would have to cut production to protect prices and then that prices would collapse in any event, they scoffed. One oil minister said Yamani must be joking...