The oil revolution

Press, Volume CXII, Issue 33034, 29 September 1972, Page 8

The oil revolution

The long-standing dispute between the Middle East oil-producing countries —now formally linked in the Organisation of Petroleum Exporting Countries — and the international oil companies appears to be entering its final phase. It is not possible yet to see how it will end; but it is obvious that any solution arrived at will be based on a sharing of profits. The days of concessions to find, produce, and export crude oil to Western refineries at a fixed price to the governments of the producing countries are gone. The solidarity of O.P.E.C. in bargaining with the companies is having its desired effect. In London this month the chief negotiator for the producing countries, Sheikh Ahmed Zaki Yamani, of Saudi Arabia, said that agreement with the companies was In sight on the principle of “ participation ” —meaning 51 per cent Arab ownership, the only alternative to nationalisation. This apparently does not mean the immediate acquisitioh by the producing countries of 51 per cent of stock: it will begin at 20 per cent acquisition and rise at an agreed pace towards the goal

Where nationalisation has already taken place, as in Iraq, which took over the Iraq Petroleum Company’s holding at the beginning of June, further negotiations may be necessary if the principle of participation is to be generally applied. In July the Iraqi Government was already complaining that the company had reduced by 44 per cent its output from the northern fields, causing in nine weeks a loss in royalties of $33 million. The company replied that the cutback was brought about by an oil surplus; there had been a drop in the European demand and also a drop in freight rates. The significance of lower freight charges is that, instead of sending northern oil by pipeline to the Mediterranean, it is cheaper to ship it in large tankers from the Gulf by the Cape route. Libyan production has been cut back as well: but Libva. with its enormous currency reserves, is not greatly concerned in the meantime, whereas Iraq needs money for development.

A settlement of the O.P.E.C. dispute with the companies might be delayed through some of the producers preferring to make their own deals with the companies. In Iran the Shah has announced that he would continue to honour the 1954 operations agreement with the oil consortium—in which British Petroleum holds a major 40 per cent — on the understanding that there would be a continuous rise In production for 50 years, aimed at reaching a maximum of 400 million tons a year.

Clearly there may be some way to go yet before the industry in the Middle East is stabilised. The companies will want to be certain that any agreement they sign will be binding: they will not want any loopholes through which the producing countries may attempt to obtain increased production charges. But Sheikh Yamani’s acknowledgement of the need to maintain the confidence of Western investors in the oil industrv is encouraging. Without confidence, he said, the flow of capital and technology to the producing countries would dry up, thus ending the search for new reserves.