It is for this reason that some OPEC members are making a case for increasing supply (to the tune of 1.2 to 1.7 million barrels a day) so as to bring prices down to the $18-21 range. Others, such as Venezuela, are reportedly arguing for even lower ceilings. Whether these moderates would be able to convince producers who want to make the best of the current situation to make up for past losses is yet unclear. But some effort to moderate the price level, even if not at levels as low as $18 seems a prerequisite to prevent oil price volatility.
 
There are many other dangers facing OPEC, however. First, there is the threat that lulled by the benefits of high prices, individual producers may be characterised by a loss of short-term memory. Forgetting the futility of breaking the cartel, they may make unacceptable quota demands and implement them in the face of disagreement, in an effort to use the current state of the market to quickly recoup the losses they suffered during 1997-98. This is a sure prescription for a sharp downturn in prices.
 
Second, the impact of high oil prices on consumers in the developed countries, has already set off frenetic efforts at oil diplomacy on the part of developed country governments, led as usual by the US. Annual inflation in the euro-zone hit the European Central Bank's target ceiling of 2 per cent in January for the first time since the euro's launch 14 months ago. The increase was mainly a result of higher energy prices. Producer prices in the US rose by 1 per cent in February, even though excluding energy and food, inflation stood at just 0.3 per cent. As expected, Republicans are making an issue of rising oil prices. Republican Senator Benjamin Gilman, chairman of the house international relations committee, has initiated discussions on legislation aimed at pressurising OPEC by stopping US aid and arms sales to countries seen to be engaged in oil price "fixing". This has forced President Clinton to promise "quiet diplomacy" to bring oil prices down and new measures to reduce America's dependence on oil imports. Given the differences in the relationships with and perceptions of the US among OPEC's members, the willingness to accommodate US demands may vary. The disagreement that ensues can once again threaten the cartel.
 
OPEC's real strength at the moment is the fact that even at the current high level of prices, the macroeconomic consequences in the developed world have not been too grave. While the actual and likely inflationary impact of the oil price increase has encouraged the US Federal reserve to raise interest rates marginally to moderate the persistently high growth rate in that country, no major contractionary response is as yet visible.
 
In the developing countries, however, the effects are bound to be severe. This would be true of even the more developed of the developing countries. Thus, during April-November 1999, imports of petroleum products into India rose by 5.1 per cent. But, the outlay on those imports rose by close to 60 per cent. This reflects the impact of an average price during that period of possibly around $18. For a full year, this would amount to an increase in foreign exchange outlay on petroleum, oil and lubricants of around $3.8 billion, which is well over a quarter of the trade deficit recorded in 1998-99. With the Indian government being in liberalising mode, unless the financing needed to meet that hike in the import bill comes in the form of capital flows, a degree of contraction may be inevitable.
 
Similar developments in East Asia may abort the recovery that promises to restore economic activity in these countries to levels that prevailed before the financial crises of 1997-98. OPEC decision-makers would need to factor this into their calculations of an appropriate price of oil, even from their own point of view. If not, even if these countries only account for a smaller share in world oil imports, a severe contraction could make a noticeable difference to world oil demand, endangering OPEC unity.
 
It would indeed be unfortunate if the unity forged in 1999 as a result of an unacceptable floor to oil prices is broken by an inability to agree on a ceiling to those prices. OPEC's effort in the 1970s to shift the international terms of exchange in favour of developing country primary producers and the rapid process of industrialisation in East Asia during the 1970s and 1980s constituted the two major post-war challenges to developed-country domination over the world economy. Both have faced setbacks since. The recent unity within OPEC and the dramatic effect it has had on oil prices promise to once again revive the struggle for a semblance of balance in the world economy. This opportunity must not be lost.