PETROLEUM POLITICS 1951-1974

...Oil is an exhaustible resource, not a manufactured good...

...of California is also known as Stancal, Calso, or Chevron...

...For the oil companies themselves the much-heralded energy crisis was quite simply a crisis of imminent expropriation upstream and hence a need to recoup themselves downstream...

...In the years from 1955 to 1970, Western Europe and Japan, in a period of unheard-of industrial expansion, perform their secular switch from coal to oil...

...The sphinxlike Arab at the gas pump, instead, suggests a plausible origin of the riddle...

...Similarly the Standard Oil Co...

...Act One: Company Control (1951-1955) THE DRAMA as a whole begins more than two decades ago as Iran's aging, aristocratic, principled, nationalist, tearful prime minister, Muhammad Mossadegh, proclaims the nationalization of the Iranian assets of the British Petroleum Company, then constituting one of the largest oil-producing complexes in the world...

...Sheikh Ahmad Zaki al-Yamani, the quick-witted, Harvardtrained oil minister of Saudi Arabia, protests 146 DANKWART A. RUSTOW his dedication to free enterprise and aversion to nationalization...

...Qaddafi, smarting at not even having been told about the Yom Kippur War, is unenthusiastic...

...Moreover, even the Washington optimists concede that "energy independence" for the United States will at best come in the 1980s, and for the rest of OECD much later, if ever...

...After some scurrying by Kissinger to Moscow and the Middle East and some pointed messages between Brezhnev and Nixon, which, in the latter's phrase, "leave little to the imagination," it is clear that Washington and Moscow concur on cessation rather than escalation of the conflict...

...Of course there is full compensation, computed by sisterly agreement...

...Straining to learn what the traffic will bear, the Arabs and Iranians find out that it will bear a great deal...

...When the talk of energy crisis begins in 1972, the United States imports only about 3 percent of its petroleum from Arab countries, and petroleum itself accounts for only PETROLEUM POLITICS 1951-1974 147 one-half of our primary energy consumption —the remainder being mostly natural gas and coal...

...Just how long a step it might be was illustrated by President Nixon's own program for controlling oil-company profits...

...The tone of that discussion, to be sure, has become quite hostile to the oil companies as motorists have queued for gasoline, truckers threatened to strike, homeowners faced mounting fuel bills, and public prosecutors looked into petty price gouging, tanker queues, and petroleum supplies withheld in customs bond...

...to Paris and Hanoi to end the war in Vietnam...

...All three circumstances contribute to the sporadic shortages, now of fuel oil and now of gasoline, throughout the last Dart of Act Three...

...Just incidentally, B.P...

...Before taking up these global negotiations, the industrial countries also meet with the non-oil producers of the Third World for whom, as everyone agrees, the current prices may well spell economic ruin...

...And the exponential rise in world petroleum prices, with its possible disastrous effects on our balance of payments, makes this development of alternative fuels not only imperative but also economic...

...They and not the companies will get the lion's share of the proceeds—about 85 percent by 1973...

...In view of the ample precedents for nationalization throughout the Third World, will the oil multinationals continue to engage in the costly process of worldwide exploration, particularly on the continental shelves...

...How much of the remainder will they spend on local arms races between Saudi Arabia and Iran, or (as mostly heretofore) on short-term investments in the Eurodollar market...

...When the turning point comes, will prices revert to their pre-1973 or pre-1969 stability or will they fluctuate as wildly as those of some other commodities and, for that matter, of "spot charters" for oil tankers...

...What of the financial effects...

...But the multinational parent companies must somehow allocate their shrinking supplies among all their customers...

...DANKWART A. RusTOw teaches political science and history of science at the City University of New York...

...Will even their downstream functions come under attack, as producing countries seek to barter higher production or safety of supply against entry of their national oil companies into the refinery, filling station, and heating oil businesses in the United States and elsewhere— a scenario fully sketched by Yamani as early as 1972...

...The future international role of the oil comoanies also poses some perplexing questions...

...Even after the lifting of the quota system in the spring of 1973, Arab oil imports amount to less than 6 percent of petroleum demand...

...agrees to yield three-fifths of these "operating" rights to other multinationals, five of them American, one BritishDutch, and one French...

...The first is a direct effect of the "drain-America-first policy," and the second an indirect one...

...The richest finds are made in Libya, andthis time the Seven Sisters must share the bonanza with a dozen others...

...And of course, once the oil producers step up their production and begin to lower their prices there may even be some cutthroat competition driving prices yet lower...

...The dunce of Act Two is the American consumer who, between protectionist prices granted to the independents and windfall profits accruing to the multinationals, is estimated to have spent an additional $3 billion to $5 billion per annum under the quota regime...

...by late 1973 it lept to an annual rate of about $18 billion...

...Incidentally, while the quota idea comes from the independents, it is taken up without much grumbling by the multinationals who stand to make handsome profits by selling their "import tickets" to the highest bidders...

...instead, he proposes a scheme of "participation" whereby Saudi Arabia and neighboring sheikhdoms will take over an immediate 25 percent interest in the concessions, which is to rise year by year to 51 percent in 1981...

...Central Intelligence Agency...

...At first it tries the monopolist's ploy of reducing production to drive up prices, and hence its members' tax take...

...As a result the 50-50 division of profits becomes 65-35 by 1965 and 70-30 PETROLEUM POLITICS 1951-1974 145 by 1969—and all this on the basis of larger rather than smaller production...

...But assume that the ambiguity were resolved and the escape hatch closed: will the American public, after spending billions of dollars on autarchy, really allow itself to be cajoled into exporting the tangible results of such hard-won "energy independence...

...And on December 24 they increase it by an even cooler 128 percent...

...By the winter of 1972-73 the United States faces two real problems with regard to petroleum: a slight decline in domestic production ever since 1970, and a shortage of port facilities and refinery capacity (particularly on the East Coast) to handle such additional imports as the federal government might allow...

...Amid the general anxiety about fuel shortages, the petroleum-producing governments, also in mid-October, increase the "posted price" by a cool 70 percent...

...Here the independent companies, which nroduce oil at a cost of $1.50 or more, induce the federal government to impose rigid import restrictions...

...United States opinion has been turning toward rather than away from Israel, and in any case the possibilities of American pressure on that embattled nation are limited...

...Persian Gulf...

...The official reasons seem farfetched...

...In Act Five, will the American taxpayer be trapped once again in his time-honored and generous role...

...That leaves mostly the Arabian peninsula, or only two-thirds of total Arab production, as going fully along with the boycott...

...Not surprisingly, the final scene of Act Three takes place in the United States where, from about the middle of 1972, the "energy crisis" slowly filters into public consciousness: schools closing for lack of heat, gas stations turning away customers, a major oil company advertising not the virtues or availability of its products but their imminent disappearance, the President's first "Energy Messages," and an article in Foreign Affairs urging a crash program for "energy independence" with a price tag of $60 billion...

...Persian Gulf...

...Will the oil-producing countries succeed in their ambitious attempt to revolutionize the distribution of real assets in the world's economy...

...Or will curtailed industrial growth and recurrent devaluation lead to Kissinger's nightmare of "a vicious cycle of competition, autarchy, rivalry, and depression such as led to the collapse of world order in the thirties...

...Act Two: The Stage Expands (1955-1970) AFTER the hectic pace of Act One, Act Two seems all in slow motion...

...Libyan governments, too, find that they can drive harder bargains with a score of companies than any Persian Gulf country can with a single consortium...

...But amid all the shadowboxing, the Middle Eastern countries, now firmly in the vanguard of OPEC, have made three points quite clear...

...Ever since Act Three of the petroleum drama, as we saw, they have begun to shift their attention to the domestic American scene...

...Specifically, in terms of any outcome at Geneva or along Israel's borders, the oil weapon is likely to prove blunt...

...150 DANKWART A. RUSTOW Simon and other optimists are repeating the naive mistake (made by Western observers of Mossadegh's nationalization and Nasser's seizure of the Canal) of underrating the technical competence of the players across the table...

...Will there be adequate "recycling" of these oil incomes from the Middle East via Beirut, Zurich, or London, back to Frankfurt, New York, or Tokyo so as to finance the bloated foreign-exchange bills of the importing countries...

...Neither the Shah nor Sheikh Yamani are active candidates for the Nobel Prize in mathematics...

...Even before his appearance on the magazine cover, the multinational oil companies win several significant political and economic advantages: the freeing of imports, the reopening of the Alaska pipeline issue, reconsideration of clean-air standards, higher prices with hardly a murmur from the public, profits at all-time highs, and widespread talk of the need for federal subsidies to develop alternative energy sources at home...

...Enter instead the multinational oil companies, also known as the Seven Sisters: Exxon, Shell, B.P., Texaco, Standard of California, Gulf, and Mobil.* Secure in their control of the Middle East's remaining oil production, of two-thirds of the world's tanker fleet, and more than half of non-Communist refinery capacity, they refuse to load, ship, or sell what little oil Mossadegh's nationalized operation manages to produce...

...Since five of the multinationals are American and the other two have large assets in the U.S., one may assume that their American customers will fare no worse than others...

...Or will we require the companies (including large oil companies) who own the coalfields to restore topsoil and vegetation as they go along...

...we can even bring its representatives to the conference table...

...And this time Kissinger could for once abandon his jet-age diplomacy for the time-tested MetternichBismarck model of solving the world's problems by assembling all other statesmen back home at congresses in Vienna, Berlin, or Washington, as the case may be...

...They alone, by sovereign power of decree if necessary, will decide how much oil is produced and offered in the world market...

...The grim fact remained that, solidarity or selfishness aside, the collective situation of oil-consuming countries would never be symmetrical with that of the oil producers—for the simple reason that the storage of oil profits is very lucrative and the storage of oil very costly...

...The oil companies themselves seem to be taking no chances on continuing their accustomed international role...

...The Suez Canal is closed indefinitely, forcing tankers from the Persian Gulf to Europe to go twice as far around the Cape...

...Algeria stands aside...

...That, all too literally, will be the $64 billion question of 1974 and beyond...

...As the curtain drops, the seven companies still dominate the stage, their rights confirmed and their profits at customary levels...

...and of course the British and French taxpayers are assigned a role just as helpful and statesmanlike as that vouchsafed to their American cousins...

...Instead they promise to return to the 15 percent cuts of October and to confine their embargo only to the United States and the Netherlands...

...When the Gulf countries get their 55 percent, Libya's Colonel Qaddafi demands 60 percent, since his oil is closer to Europe and lower in sulfur...

...How large will be the income of the oilproducing countries—estimated by some to PETROLEUM POLITICS 1951-1974 151 be running as high as $70 billion for 1974— and how much of it will they manage to spend on development...

...The shift from "available energy" in one sentence to "petroleum supply" in the next seems disingenuous, and the reference to other indigenous producers (Canada, Norway, and in a few years Britain) leaves a convenient alibi...

...PETROLEUM POLITICS 1951-1974 153...

...But this climax was only the fourth of five acts, with the finale still in the future...

...And if not, can we expect Europe or Japan to believe in our sincerity...

...The United States declares its willingness," he solemnly intoned, "to share available energy in times of emergency or prolonged shortage...

...The dupes of Act Three are those members of the American public who believe all they see or hear about "energy crisis" in the media, and particularly in the companies' own proliferating advertisements...

...The focus of the American discussion will for some time be on the problem of imports vs...

...Meanwhile, across the Persian Gulf, the king of Saudi Arabia, following an earlier precedent from Venezuela, signs a "50-50" profit-sharing agreement with Aramco, the joint subsidiary of four of the Seven Sisters...

...Enter, too, the Arab countries, foremost Kuwait and Saudi Arabia, which under the aegis of the Seven Sisters quickly augment their production by whatever is missing from Iran, and then some...

...Indeed, one finally imagines that this is part of their purpose...

...In the prevent essay they will all be referred to by their official names as of early 1974...

...while Middle East oil flows freely and the companies manage to keep its price at around $2 a barrel (f.o.b...

...If Japan and Europe were caught in a massive recession and vast unemployment, moreover, American industry might even make large inroads into their export markets...

...The crucial fact remains that the United States, partly drained as it is, still is the world's largest oil producer and (aside from Soviet Russia) the most nearly self-sufficient consumer...

...He is the author of The Politics of Compromise (1955), A World of Nations (1967), Middle Eastern Political Systems (1971), and editor of Philosophers and Kings: Studies in Leadership (1970...

...The Kuwaiti legislature, not previously noted for its independence of spirit, balks at ratifying the participation deal: why take just 25 percent now, if Iraq already has taken 51 percent...

...of New York, and British Petroleum as the Anglo-Iranian Oil Co...

...The key questions are the conditions under which the program is to be pursued and how it is to be financed...

...Act Four: The Arab "Oil Weapon" (1973) THE SCENE once again is war, as Egypt and Syria attack Israel on Yom Kippur, October 6, 1973...

...Instead, they agree to multilateral diplomacy, e.g., between the Organization for Economic Cooperation and Development representing the industrial nations and OPEC—or, better yet, its individual members—representing the producers...

...Even Walter J. Levy, one of the earliest champions of what for the moment is Washington policy, concedes that "the time for action was yesterday"—without considering that today and tomorrow may be times for a somewhat different kind of action...

...Perhaps a program such as Kissinger announced in February might have been timely in 1968 or 1969—when few people were alive to the problem...

...Act Five: The $64 Billion Question A FEW OPTIMISTS in Washington evidently were hoping that Henry Kissinger's opening address to the conference of oil-importing countries on February 11 would set the stage for the final act of the petroleum drama...

...A bulldozer rams the TAP-line which brings much of Saudi oil to the Mediterranean, and the Syrian government takes its time over allowing repairs...

...The oil income of Middle Eastern governments has gone up from $200 million in 1950 to $1 billion in 1955...

...No wonder that the Arab ministers decide to reverse signals while they are ahead— with Israel at the conference table, the U.S...

...The United States, with only 6 percent of the earth's population, uses up as much as 30 percent of its commercial energy...

...The seven companies, in the words of the chairman of B.P., are now little more than a "tax-collecting agency" for OPEC...

...He forgot to mention that, in view of the companies' enormous tax credits on payments to foreign governments, few if any of them ever claim any foreign depletion allowances to start with...

...In the ten weeks from October 17 to December 25, 1973, the Arab and United States governments and the multinational oil companies acted out the climax of a tense drama, with the nation of Israel, the American consumer, and the peoples of Japan and Europe assigned for the moment to the supporting cast...

...Contrasting negotiating styles in Tripoli, Tehran, and Riyadh add a touch of farce to the proceedings...

...And they have forced, for the first time in a quarter century, a substantial increase in the world price of crude petroleum...

...But the economics of import quotas, port construction, and refinery runs mean little to the houseowner without fuel, the parent whose children are sent away from unheated schools, or the motorist stranded at night...

...taxpayer...

...Iraq increases output on the charming reasoning that the boycott is too mild, that Iraq has been sending troops to the Syrian front and now must pay for the expedition by making more money off the capitalists...

...And its public rhetoric of free enterprise remains just about the best available guarantee against nationalization or even effective regulation of corporate giants...

...OPEC in late 1970 resolves to raise the tax (after royalty) from 50 percent to 55 percent, and companies operating around the Persian Gulf agree, in the vain hope of buying a five-year respite...

...In the final scene, the same beneficent 50-50 scheme is extended to Iran, the team of helpful Americans this time not coming from CIA or Treasury but being headed by Undersecretary of State Herbert Hoover, Jr...

...In particular, they listen to the warnings that bilateral deals between France and Saudi Arabia or Japan and Iran can only drive up prices further...

...On the need for a major program for "energy independence," therefore, there can be little quarrel between the oil companies and their critics...

...A notable exception to this spectacular expansion of markets for Middle Eastern oil is the United States...

...Indeed, such are the standard operating procedures in a mixed public-private economy in which the oil companies have long been among the biggest operators...

...We can give to Israel the means of waging war or withhold them...

...Their publicity campaigns indicate that they welcome public concern about the energy crisis—particularly while it focuses on such distant targets as Arab governments or worldwide patterns of demand for an exhaustible resource...

...quite the contrary, for 14 years the Americans imposed an almost total ban on Arab and other imports...

...Instead, there are almost continuous "negotiations" increasingly resembling dictates...

...Gone now are Fulbright's scenarios of Israelis marching along 800 miles of pipeline to make Arab oil safe for American consumption...

...How fully do Arabs cooperate...

...But our growing economy requires the rapid development of domestic non152 DANKWART A. RUSTOW petroleum sources of energy—such as coal gasification or liquefaction, oil retorted from shale, atomic power, solar energy, and others...

...The young Arab on the cover turns out to be a Jewish boy from Brooklyn doing some free-lance modeling in a Bedouin costume brought back from Israel...

...Officials of the Common Market for years had been urging member countries to store 90 days' or even 120 days' worth of petroleum— yet when the crisis came last October there were actual supplies for around 60 days...

...Above all—considering the comparative impact of the embargo on the United States, Western Europe, and Japan—the competitive position of American industry and of the dollar itself are likely to be strengthened, and the more so the longer the embargo lasts and the more the prices go up...

...It gives the Saudis a share of oil income three times as large as that previously allowed to Iran, and it is hailed as a farsighted act of American statesmanship, in contrast to the perfidious skinflint ways of the imperialist British...

...How soon will the present oil shortage turn into a glut, as a result of such trends as energy conservation in the industrial countries, increased production in Iraq, Indonesia, and Ecuador, new supplies from the South China Sea, and synthetic production from shale or coal...

...In the resulting tight market, a third problem is posed by the same large integrated companies whose refineries give preference to their own retail outlets and thus tend to squeeze out independent competitors...

...And the Western taxpayer has made his debut as the dupe of the play...

...Mossadegh by now is on the outs with the Shah, the Iranian army, and the Western powers...

...Act Three: OPEC Takes Charge (1970-73) THE CURTAIN rises over the battlefields of the Third Arab-Israeli War of 1967...

...The posted price of December implies payments to Middle East producing governments of $7 a barrel, a combined Arab and Iranian oil income of $70 billion or more in 1974, and a world price of petroleum of nearly $8 a barrel f.o.b...

...But the increase to 50 percent is payable in "income tax," not "royalty," and as such comes under a special United States Treasury ruling making it deductible as a full credit against U.S...

...The predominance of the Seven Sisters is challenged by a number of newcomers: American independents (that is, companies with no previous sources of foreign petroleum), and companies from Western Europe, Japan, and even India—all of them bent on grabbing their share of the Middle East action, even if it means dividing profits 40 to 60 or perhaps 25 to 75...

...Henry, after all, had built up an enviable diplomatic record by flying to Peking and Moscow to achieve normalcy with China and detente with Russia...

...Next OPEC tries more successful schemes, such as levying the 50 percent tax on top of (rather than including) the royalty, or getting companies to agree to a "posted price" for tax purposes that disregards the customary discounts offered by subsidiaries to their parent companies...

...While the multinationals retain control of the worldwide network of transport and refinery, it remains impossible for producing countries to pinpoint their boycotts precisely...

...THE DAY AFTER the price increase, on Christmas day 1973, the Arab oil ministers make their last headline of the year by calling off their program of progressive cutbacks...

...Officials of such companies as Aramoo obviously cannot defy their hosts by producing too much or loading tankers bound for the wrong destination...

...The British Royal Navy briefly appears in the wings but decides against gunboat diplomacy and steams off...

...Arab oil ministers meeting in Kuwait announce a two-pronged application of their "oil weapon": an outright ban on exports to the United States as Israel's major supplier of arms and to the Netherlands, and production cuts that start at 15 percent but will go up by 5 percent a month until Israel withdraws from the territories occupied in 1967 and 1973 and grants the "just rights" of Palestinian refugees...

...But it is up to the public—that is to Congress, president, and electorate—to decide which if any of these demands are to be granted...

...Could the real reason be that a boycott of the Netherlands, whose refinery space far exceeds domestic consumption, hurts many European countries a little but none too much...

...The enormous losses of planes and tanks on both sides make it clear that American or Soviet willingness to resupply their protegˆs with weapons will be decisive...

...Above all, will the federal government assume the full cost of developing alternatives to petroleum and hand their operation over to industry once high profits become certain...

...but we cannot impose on it terms of peace that it would consider disastrous...

...Measures of energy conservation of a comparatively painless sort can banish the specter of energy blackmail from our foreign policy for years ahead...

...Kissinger himself glossed over a detail that was sure to become crucial...

...By refusing to buy it abroad when cheap and free from political strings, the United States (as will become clear in Act Three) is condemned to buying it dear and with strings...

...Despite the explanations offered by the twinkle-eyed Sheikh Yamani and other Arab ministers, the new Arab policy—unlike the messages exchanged by the nuclear powers 148 DANKWART A. RUSTOW —does leave a good deal to the imagination...

...President Nixon pointedly asks Arab rulers to ponder the fate of Mossadegh (who could not sell his nationalized oil...

...They retain a good deal of discretion in supplying this or that American customer from Ecuador or Angola and in cutting back this or that customer in Europe and Japan in view of the emergency...

...taxes on the foreign operations of American companies, including their joint subsidiaries...

...Seven oil companies, five of them American, are among the 16 leading multinational corporations, their combined sales totaling $63 billion, or more than the gross national product of India and Pakistan...

...In Act Two that role was taken over by the American consumer, and in Act Three by the newspaper-reading and televiewing public...

...What of the oil companies...

...in an even-handed posture in a nonelection year, ahead very specifically by $25 billion or more in extra revenues for 1974, and ahead with their newly won stature as world statesmen unimpaired by overplaying their hand...

...As Act Three draws to a close, it becomes hard, even for experts, to remember the "arguments" invoked or the successive "agreements" concluded...

...Moreover, except for an insignificant spell in 1967, no Arab country, prior to October 1973, has ever banned exports to America...

...Yet whatever the reversal of their Middle Eastern fortunes, they still control the world's distribution system for oil, they are maintaining (or, as we shall see, increasing) their profits, and they still are among the largest corporate giants in the economies of the Western countries...

...Corporations owe their prime allegiance to stockholders, that is, to profits...

...domestic production...

...What is the effect on industrial countries...

...Colonel Qaddafi, the Koranquoting fundamentalist who seized power at the age of twenty-seven, extracts his concessions in hour-long fire-breathing harangues...

...Will thoughtless strip-mining be allowed to turn hundreds of square miles of our country into a permanent moonscape...

...The fighting ceases on the 17th day...

...The New York Times Magazine asks more bluntly: "Can the Arabs Really Blackmail Us...

...Yet from such expressions of public anger to effective control was a long step...

...Luckily for the Seven Sisters, there are few good concessions to be had just then around the oilrich Persian Gulf...

...144 military coup secretly encouraged by the U.S...

...Instead there was a scramble by France, Japan, and others for the very bilateral deals Kissinger was denouncing...

...at which industrial countries will substantially decrease their consumption, or a level ($10 or $12...

...As for sharing oil supplies in an emergency, no one except the United States had offered help to the Netherlands last fall...

...There is nothing immoral or outlandish, therefore, about oil companies seeking tax credits, depletion allowances, protectionist quotas, exemotions from ecological regulations, or huge government subsidies for the development of new products...

...The Shah celebrates Persian New Year by "nationalizing" foreign oil "operations" (the "properties," remember, had been nationalized by Mossadegh in 1951), but, reasonable as ever, he promises to let the companies have their customary amounts of oil at cost for the remaining years of the concession...

...still, they seem quite capable of compound-interest calculations and other exercises in fifth-grade arithmetic...

...Or will the oil companies, perhaps with suitable exemptions from antitrust regulations, be induced to bear the cost of research and development themselves...

...and even if there should be any future willingness to share, there might be very little to be shared...

...The failure of Kissinger's petroleum scenario leaves unanswered some fundamental questions about the future of the world economy...

...of New Jersey, Mobil as Socony or Standard Oil Co...

...To save pride—the restored Shah is almost as proud as his archrival Mossadegh—Iran retains its "property" title in the oil fields on condition of returning their "operation" to the international oil companies...

...If large-scale production of shale oil proves feasible, will the public lands that crntain most of the shale be kept public or sold at cutrate...

...Other parts of the energy hullabaloo are, for the remainder of Act Three, almost equally misleading...

...On the 12th day...

...If and when the balance should shift, supply and demand (a pair of concepts so dear to American spokesmen on other occasions) will give ample warning that it is in the interest of oil-producing countries to lower their prices...

...It remains the world's largest market for petroleum...

...The climax of the First Act comes in 1953, when Mossadegh is overthrown in a * The oil multinationals have a disconcerting habit of changing names...

...So much dramatic talent surely presaged a happy ending for the energy crisis...

...But after the Suez War of 1956 and the consequent closing of the Canal, the oil search shifts to Arab North Africa...

...As announced last December, one of its most immediate features was to be a cancellation of the depletion allowances on the oil companies' foreign operations...

...In the United States, the actual shortfall by mid-December is estimated to be no more than 3 or 4 percent of petroleum consumption, whereas the effects in Europe and especially Japan threaten to be far worse...

...Whatever the particular Arab reasoning, others have reason to breathe a temporary sigh of relief as the curtain falls on Act Four...

...Senator Fulbright warns the Arabs not to be unreasonable lest more impatient Americans think of invading them, either directly or by Israeli or Iranian proxy...

...For subsequent increases the only ceiling in sight is a level ($8 or $9 a barrel...

...Thus Exxon was formerly known as Esso or Standard Oil Co...

...Enter OPEC, the Organization of Petroleum Exporting Countries, founded in 1960 by Venezuela, Iran, Saudi Arabia, Kuwait, and Iraq, and joined in due course by all other sizable producers of the Third World...

...The increased payments, therefore, occasion no expense to the companies but are borne instead by the U.S...

...The combined pressure from independents and OPEC drives the Seven Sisters to seek new markets...

...Meanwhile, Algeria, then Iraq, and then Libya proceed to nationalize Western companies one by one...

...The American taxpayer two decades ago made his debut as the dupe of Act One of the drama of international petroleum politics...

...Meanwhile, Iranians, Arabs, and others have taken to heart the competent arithmetic and plausible syllogisms of Energy Administrator William E. Simon, which prove inexorably that the current higher prices and lower production do not really benefit the OPEC countries, since a $10 per barrel profit today invested at 8 percent compound interest will yield $21.59 in 1984—a level to which even the tightest of cartels is unlikely to push prices by then...

...In 1970 their oil income still was under 6 billion...

...and to Moscow, Tel Aviv, and various Arab capitals to get the Arab-Israeli dispute off dead center...

...This time, the initiative comes from the Shah, although they all, including Yamani, the Shah, Qaddafi, and even Venezuelans, Indonesians, and Nigerians concur and are sure to cooperate...

...Devaluations of the dollar provide 'the occasion for new increases in "posted prices...

...Or will OPEC countries spend enough money on supertankers and refineries to challenge them in that arena as well and gradually reduce them to a role of mere distributors and retailers...

...Gone too are Nixon's hints about Mossadegh's comeuppance...

...This argument is not just (as with watches) self-serving, it is contrary to all sense...

...Meanwhile only imagination and inference can provide answers to questions such as these: • Why pick on the Netherlands...

...Not very fully, it soon becomes clear...

...Alas, the optimistic scenario is unlikely to provide the actual script for Act Five...

...Just to make sure no one garbles his lines, an American Treasury expert briefly climbs into the souffleur's box to prompt Saudi officials on the appropriate revisions of their tax laws...

...The import quota system of 1959, in the apt phrase of one critic, amounts to a "drain-America-first policy," designed to hasten—and not to ward off—the evil day...

...And while you are shifting attention and trying to recoup, why not recoup yourself more than fully...

...Having lost their hold on production upstream, will they be able to retain control of the midstream operations of transportation and processing...

...at which large quantities of new fuels—such as oil from shale or gas from coal—may become available in the uncertain future...

...The partially effective Arab embargo is having less of an impact in the United States than the oil industry's earlier advertisements, alarmist PETROLEUM POLITICS 1951-1974 149 magazine articles, or the Nixon administration's first assessments night suggest...

...With oil selling at $8 or $10 a barrel or more, many substitutes will seem attractive that were prohibitive when oil was only $2 or $3 a barrel...

...The United States, after all, remains the leading petroleum producer, and shale oil and liquefied coal can only enhance that stature...

...With demand for oil growing at about 10 percent a year in Europe and 17 percent in Japan, the world market is tighter than ever...

...For the large companies see little incentive for spending hundreds of millions on tanker ports or refineries to handle imports that the government has not yet allowed...

...The Shah, now firmly on his throne but worried about Soviet power to the north, invokes his reasonableness and friendshipwith the West to obtain equal or greater concessions— which in turn provoke bigger and better tantrums from Qaddafi...

...By mid-1973, the crisis is widely attributed to our growing dependence on petroleum imports, particularly from unfriendly Arab countries...

...For coal is labor intensive and must be brought up from deeper and meagerer seams, whence its price steadily rises...

...Perhaps Sheikh Yamani and his friends are also using their imagination...

...THE PUBLIC DISCUSSION of the last few months indicates that a crucial scene of Act Five will indeed be acted out right here in the United States...

...Therefore the outcome at Geneva, if any, is likely to be a tortuous compromise...

...We would be prepared to allocate an agreed portion of our petroleum supply provided other consuming countries with indigenous production do likewise...

...The solidarity to which Kissinger appealed was far from evident in the actions, or even the rhetoric, of other industrial countries...

...Will OPEC continue to show more solidarity than OECD...

...The optimists' scenario runs something like this: Canada, Western Europe, and Japan yield to Washington's pleas for a common energy policy and gratefully receive American offers of sharing technological know-how and even emergency supplies for the future...

...Unable to sell his oil yet refusing to retreat from nationalization he is reduced to shifting alliances, now with reactionary mullahs and then with the Communist Tudeh party...

...Conceivably, therefore, Americans might get by with curtailing their weekend pleasuredriving, forming carpools, reversing the decay of their railroads, and speeding the search for new domestic oil or nonoil substitutes...

...Their rhetoric is all national defense: If the domestic producer is allowed to drown in a flood of imports, where are we to get oil in an emergency...

...But OPEC members cannot impose any prorationing scheme on the companies, or even agree on one among themselves...

...Whom the CIA helped overthrow?—the President is too delicate to spell out his analogy) . From the cover of Newsweek a young man in desert garb leers at the reader, his hand on the nozzle of a gasoline hose, under a headline proclaiming "The Arab Oil Squeeze...

...Thanks to a fivefold jump in volume and a steady production cost of around 10¢ a barrel, the companies can afford to increase their payments to Middle Eastern governments from $1 billion in 1955 to $5 billion in 1969, while still doubling their own income from the Middle East from about $1 to $2 billion...