DEARER WORLD OIL? DELICATE MIDDLE EAST PRICE-PEACE IS CRACKING

Press, Volume CXIII, Issue 33189, 31 March 1973, Page 14

DEARER WORLD OIL? DELICATE MIDDLE EAST PRICE-PEACE IS CRACKING

(Reprinted from the "Economist, by arrangementi

Algeria lias shattered the pleasant dreams of that handful vf j optimists who had convinced themselves that with the “participation , ] issue largely settled the international oil industry could look lor ward tcm a period of relative calm. Algeria proposed at the meeting oi the Organisation of Petroleum Exporting Countries (0.P.E.C.) in Vienna all current price agreements between the oil companies and the 0.1 .hA countries be scrapped and negotiations begun from square one. Tins came as a bombshell whose reverberations are going to be felt throughout the oil world for a long time to come.

The proposal was vetoed) by the Saudi Arabians but not before a good many of] the other oil producers had :strongly supported it. It will I take only one or two clashes [on sensitive issues and mod-; erate countries like Saudi Arabia will probably no longer be able to sit on pressures from the radical oil] countries, nor may they) [want to. The upshot will be [another increase in the price lof crude oil. Sensitive spot Participation agreements have still to be negotiated in] Libya and Algeria and the Basrah oil field in Iraq, but the really sensitive spot is Iran, which chose to make its own, quite different sort of I deal with the companies. By] settling for a new and unique management structure for Iran’s oil facilities, the Shah, 'won a point from the com-: panies that is going to be • politically useful to him at) [home. The new structure will have little visible effect on 1 day-to-day operations, but it will put them under a nominally Iranian umbrella. Since,, in financial terms, Iran will! get exactly what the par-] ticipation countries will receive, the Shah can claim, with some justice, that he' has been given more by the [oil companies than they gave j under the participation agreements to Saudi Arabia’s) Sheikh Ahmed Zaki Yamanr ,and his clients. The Yamani group, consisting of Saudi Arabia, Kuwait, Qatar and Abu Dhabi, could not care less about how much political mileage the Shah makes at home out of his agreement. But if, as a result, they are asked awkward questions in their own countries, they are [going to come right back at the oil companies demanding that their agreements be re-

opened so that the Shah can) be put back in his place, which, in their opinion, is a [clear number two in the oil 'world. This is by no means the only sensitive spot. The Arabs are watching like hawks to make sure that the Iranian agreement, whose details are still being negotiated, will give Iran exactly what they are getting and not a cent more. Saudi Arabia, Kuwait, Qatar and Abu Dhabi are also concerned about certain ambiguities in the agreement reached recently between Iraq and the Iraq Petroleum Company following last June’s nation-] alisation of the Kirkuk field.] By way of compensation,] Iraq is delivering crude oil! to the company over a 15-1 month period in 1973-74, making it impossible to put an exact value to the oil. Along with some other grey areas of the Iraq-IPC agreement, it is difficult to estimate whether Iraq will be paying more or less compensation than the other Arab oil countries will under the participation agreements. If the oil companies get rather more compensation from Iraq, no one will worry. If they receive less, the other countries will be on the collective over-stretched neck of the companies in a flash. Questionable initiative ) Another spot was made [tender by President Nixoffis) 'announcement that he is [drafting a proposal that will [encourage the oil-importing [countries to act collectively[ I in their dealings with the oil- ) producing countries. Sheikh [Yamani, who is probably the [best friend the west has in the present situation, is alarmed at the prospect of pressure from America and other countries. If pressure is I exerted, he has warned pub-] licly, the west can forget

L about Saudi Arabia, for one. praising its oil production ml .[the coming years to suit the) [west’s needs. 1' Saudi Arabia hardly needs 1 more income than is already . provided by its present pro-1 ’ duction of about 6m barrels] ;]a day. so why should it, as 'has been suggested, raise 'production to 20m barrels'in ];the late 1970 s to help its: '[customers if they are going; Ito act nasty anyhow? it 'would be different, the] Saudis feel, if they were! Threatening to hold back production. but they point [that they feel a responsibil-’ ;; ity to supply the west with: i the oil it needs until altema ] dive fields can be developed. In the present sellers' mar- : ket, it is doubtful whether ; the consuming nations can get together anyhow. Some; [of them, notably France, ;[play their own games in the] ■ Middle East, but even if they did not the sheer weight] . i of commercial competition l ■ would make effective co-op-i eration difficult. President) Nixon’s initiative, instead of, [limproving matters, is likely] to reap the kind of publicity; that worsens them. U.S. dependence [ In large measure the devel-i opments which have put the [oil-producing countries so firmly in the driver’s seat have arisen out of the level-, ling off of America’s own oil] production. Even if Alaskan] I oil is brought to market with-: [in the next few years, Ameri-| can production will not be] able to keep up with expec- ] ted increases in demand, although these increases will probably not be as large as formerly thought: fuel conservation and economy are going to become increasingly fashionable in America. President Nixon’s only wav to change the balance back in | [the oil consumer’s favour is I

, to initiate a progcVhme that I will once make ' America indepenjoent of i n- ! ported energy. /This is why his promised message will probably be the most [important /fcvent this year [for the energy industries. If it is not, it will be their biggest disappointment. There is not much that AmerjCa can do to reduce its dependence on Middle East o.il/nefore the 1980 s, but it (tyfll make all the difference' [whether America's depapdence is seen as transitory or ; something that is likely to' go on indefinitely. Mr Nixon should aim for a middle course in his message. Unlike the space programme, with 'which it is sometimes compared, an energy programme ! cannot avoid stepping on the [toes of powerful, established [interests, which is why some | of the most important politicians in the Nixon Administration and Congress are ! doing what they can to influence the President’s message. Mr Nixon, a political animal if ever there was one, might [weigh the opposing factions against each other and decide [there would be little political advantage in going much beyond a fine-sounding [speech. But that would create large problems with the international energy industries. The other extreme, a crash programme for alternative fuels. is well within [America’s capability, but it is [ argued that it might even [exacerbate current problems by creating a panic and driving oil prices up even faster [than they are likely to go up anyway. According to reports in Washington, Mr Nixon’s energy speech has been written for some time, but his advisers disagree among themselves as to how strong its main provisions should [be. It is easy to see why they 'are having so much trouble.