Russian Oil SOVIET ENTRY TO WESTERN MARKETS

Press, Volume C, Issue 29548, 24 June 1961, Page 10

Russian Oil SOVIET ENTRY TO WESTERN MARKETS

tSy -LYNCEUS' Of IM ‘Economist"! (From the “Economist'’ Intelligence Unit)

London. June 13.—The news earlier this month that London and Overseas Freighters. Ltd., had enlarged its contract to carry Russian oil to various parts of the Western world has focused attention once again on the growing !impact being made by the :Soviet Union on the inter- , national oil business. This is the second contract with the Russians that has been made by London and ■Overseas Freighters, registered in Britain and managed by the Greek shipping millionaire. Mr Basil Mavjroleon. For his efforts he and a number of Scandinavian tanker-owners who are carrying Russian oil have 'been publicly blacklisted by Standard Oil. New Jersey, the world's biggest oil comI pany. I Clearly Standard has a political as well as a marketing ’problem on its hands with Russia's entry into world oil markets Representing American purchasing power in 1 many under-developed countries. especially in Latin America. Standard stands in Jdirect political conflict with iCommunist attempts at trade-iand-aid pacts. World Surplus

Nor is Standard very happy at Russia's entfy into Western oil markets from an economic point of view. Although Russia's oil exports are negligible at present (about 25 million tons out of a total world consumption of 1000 million tons annually), they nevertheless come at a time of world oil surplus, with new finds—in the Sahara, Libya and the Middle East—occurring faster than new outlets. What is more, the Russians aim to double exports in the next five years. Moreover, the price of Russian crude oil is pitched well below the official wholesale price of the international [Companies operating in the Middle East and is even said Ito be competitive with the [discounts to the oil groups' [biggest customers. The relative cheapness of Russian [crude may well be because i exports are surplus to the current Soviet five-year plan Ito step up domestic oil proi duetion. Alternatively. or I perhaps as an additional reason, the price may be deliberately lowered to gain a trade foothold for quasi-poli-Itical reasons in various nonCommunist countries. Big Italian Deals

Already Brazil. Cuba, and India have signed contracts exchanging Russian oil for 'capital goods. Japan has I taken on a three-year agree>ment to buy Russian oil and a number of other negotia-j tions are in progress. In Europe, the principal customers. in a modest way. have been Sweden. Finland. Denmark (for the State railways). and West Germany Recently, however, the Itali ian State industrial group. : E.N.1., has made a series of [ large deals, exchanging Russian oil for steel tubes and | synthetic rubber, bringing ' Russian oil imports into Italy up to nearly a quarter of the country’s total. In Britain, imports of Russian oil are limited by government quota. Small amounts of fuel products have been bought by cement and steel firms, but the total is negligible. The Russians, of.course, are anxious to earn sterling to enable them to I buy British capital goods, a ; point they emphasised heav[ily at the recent Trade Fair in Moscow. But the British [Government (which has a 55 per cent, stake in the ordinary share capital of British I Petroleum) is unwilling to | add to B P.'s present difficulIties arising from over-nro- [ duction in the Middle East, 'or cut down the purchasing 'power of the Middle East

(sheikdoms which have long ’ been good purchaser* o< 8.-i-I’iih equipment. So, for the . moment at any rate, the ban ton Russian oil imports rcI mams. Refinery Limitation The impact of Russia's (entry into the world oil market has been limited so far ! because the great bulk of what is available for sale is crude oil and the Soviets i have no world refining and (marketing organisation. This ; is why the bulk buying by ithe Italian E.N.I. (which has : its own refineries and has aspirations to market across Europe) could be significant Obtaining its crude at low prices, the group might be ; able to enter the German and British gasoline markets ■with price-cutting as its spearhead. Progress would be slow since the majority of .outlets are already tied under contract to the international oil companies, but it is a i pointer to the way Russian crude could enter the world ; product markets. What action are the internationals likely to take to prevent further incursions? While Standard. New Jersey, and the other American majors are making indignant pronouncements, it is not impossible that some hard work i is going on behind the scenes Ito try to reach a compromise with the Russians. The [Soviets have, after all, been persuaded to join the world diamond marketing organisation and they also stopped [ undercutting world aluminium and tin prices. Postibly , they could be persuaded to limit their oil exports if the [internationals agree to buy [ a fixed amount of crude from [ them at reasonable prices [and market it for them. Control of Outlets [ In the meantime, the internationals will lose no opportunity to tighten their control of marketing outlets all over the world to make it as difficult as possible for the Italians, Japanese and certain American independents to find assured demand for their products. Lobbying in Washington and London will certainly continue in order that import restrictions are maintained. The British Government, already under pressure from British engineering firms to j import Russian oil in order to make trade negotiations easier in Moscow, could be | placed in an embarrassing position, if. for instance, the [Russians were to offer to | place a shipbuilding order [with one of Britain's ailing [shipyards in exchange for oil. Here. too. a compromise solution could be reached. If Britain joined the Common Market it could take refuge .behind the proposed EEC. oil quotas and yet allow the Russians a modest increase oyer the present virtual prohibition. For the moment the fact remains that the Russians, by possessing an indigenous raw material that is in over-supply in the nonCommunist world, are able to rub a little more salt into capitalist wounds.