An Exchange of Views: 1. Oil and Power Polities
ARIDA, TOUMA
AN EXCHANGE OF VIEWS Oil and Power Politics BY TOUMA ARIDA In his article "Thinking About an Oil War" (NL, November 11), Paul Seabury concedes that inflation and the energy crisis "cannot...
...Another matter of misunderstanding is the projected threat to the economies of the West, and hence to the world, of the vast funds flowing into the treasuries of the producers...
...In December 1969, though, Colonel Muammar el-Qaddafi seized power in Libya, pulling one of the oil producers with the greatest bargaining leverage into the radical camp...
...The economic might of these concerns was backed by the weight of their home governments...
...This latter drawback can in great measure be laid at the door of the Western world: It is, after all, of some significance that in over half a century of oil exploitation in the Middle East, no large company ever saw fit to establish a single institute of petroleum instruction or research in the area...
...This subject requires examination immediately, before we advance much further down the road...
...These actions, together with mounting costs for industrial goods and raw materials, led the oil producers to raise the price of their resource gradually through 1971 and 1972...
...Specifying the dangers he perceives from the emergence of the oil "barons," he declares that the "Arab countries pursue policies pointing to a revision, by great violence if necessary, of the Arab-Israeli status quo...
...The simple truth is that a military action would not solve the energy crisis and recession in the West...
...Two essential facts related to these changes must be recognized...
...Indeed, in the long run, any revenue surpluses will be self-liquidating: The opec nations will assess their needs, deploy their resources and ultimately undertake an accelerating industrialization program for their own and their neighbors' economies-thereby gradually absorbing the funds resident in the West...
...The opec countries, and particularly the Arabs, have shown considerable willingness to move in just this direction...
...AN EXCHANGE OF VIEWS Oil and Power Politics BY TOUMA ARIDA In his article "Thinking About an Oil War" (NL, November 11), Paul Seabury concedes that inflation and the energy crisis "cannot simply be explained by the drastic oil price increase...
...A study by the World Health Organization has estimated the minimum cost for a health program in the Arab world at $35 billion...
...Within the Arab world, in fact, only Saudi Arabia, Kuwait, the Gulf states, and Libya enjoy the much-vaunted excesses...
...Evidently, Seabury's analysis is swayed by nostalgia for this fundamentally inequitable state of affairs...
...The new situation destroyed as well the carefully worked-out timetable for handing over ownership of the oil fields to the governments...
...This view is common to many Western politicians, commentators, oil executives, economists, and even university professors...
...An examination of the facts, however, suggests that not only didn't the oil price increase cause the international monetary and energy crises, but the very opposite is true...
...As might be expected, his conclusions make depressing reading...
...Here, some basic points require explaining: 1. Although precise figures are not available, it is generally accepted that oil revenues cannot be spent in their entirety, and that the surpluses will have to be "recycled...
...In reality, we are experiencing an unfortunate war of price increases by the exporters of industrial equipment and the exporters of oil...
...The West should be assured of an adequate supply of crude oil at fair prices and the exporters should be permitted to utilize their decreasing resources to speed up social and economic development...
...In the ten years from 1960-70, a combination of enormous untapped fuel supplies and competition from profit-maximizing newcomers to the international oil industry led to a steady decline in the market price of petroleum...
...The problem of oil prices must be analyzed in a general trading framework that takes into account the cost and availability of other vital raw materials and industrial commodities...
...3. Finally, it must be borne in mind that oil is not the only traded material ever to be in short supply...
...But the whole surplus notion must be treated with caution...
...Moreover, one should remember that only after October 1973 did the control of oil prices finally pass from foreign concessionaires to national authorities in the oil-producing countries...
...But the most drastic alterations in the structure of the oil industry occurred in the wake of the October War, when the production cutback and the embargo imposed by the Arab oil-producing nations had the effect of increasing oil prices...
...Not surprisingly, pressure was exerted by the U.S...
...Until he recognizes that the Arabs have a legitimate case, Seabury is unlikely to understand the politics of the oil confrontation...
...economy has itself reaped sizeable benefits...
...2. In the light of their overall requirements, the Arab oil producers, far from looking forward to decades of financial surpluses, will have innumerable opportunities to spend their income on their own development and the development of other less wealthy states in the region...
...If Europe and the United States are passing through a period of profound economic difficulty, the reasons are mainly unrelated to the price of oil and the level of imports from the Middle East...
...The Organization of Petroleum Exporting Countries (opec)-which, it should be noted en passant, is not exclusively Arab-then stepped in to formalize this rise...
...experts were confidently predicting a further drop...
...and after a seven-month struggle in 1970, he succeeded in forcing a price rise from the companies...
...Encouraged in no small part by Qaddafi's fiercely nationalistic policies, other producers proceeded to negotiate price hikes in 1971 and ownership participation agreements one year later, thus overcoming at long last the monopolistic domination by the oil corporations...
...Periodically, there have been restrictions in steel, cement and foodstuffs...
...But if Seabury has failed to think through the economic side of the oil crisis, he is no less misguided in his interpretation of its political aspect...
...Nor can they be held responsible for international financial and economic difficulties...
...All of this, of course, was closely connected with the decline of America's global hegemony...
...Such a development, though, is highly improbable...
...The number of doctors in these countries, for instance, averages 2.7 per 10,000 inhabitants, compared with 15.6 in the United States and 17.2 in West Germany...
...second, the U.S...
...Unfortunately, the response from the West has all too often been along the lines of Paul Seabury's article...
...In the case of Arabian light crude, to cite one typical example, prices fell from about $2.00 per barrel in the early '60s to nearly $1.15 per barrel at the end of the decade...
...through its traditional Middle Eastern ally, Saudi Arabia, to prevent or delay the lifting of the Arab embargo on the Netherlands, Rotterdam being Europe's largest center for oil transport and refining...
...Similar or greater amounts are urgently needed in other fields-$25 billion per year for education, and more than $100 billion for the construction of a modern road network between the Gulf countries and the Mediterranean, to give but two examples...
...Yet his argument as a whole implies the contrary, to the extent that later, stirred by his campaign against "Arab investment imperialism," he flatly contradicts himself and states: "The present crisis is the result basically of only the oil price hijack...
...and in those countries many major projects remain to be realized, or even commenced, because the necessary funds have only become available in the last year and the infrastructures necessary to absorb them efficiently and economically have not yet been developed...
...The current situation is no more than a logical stage in a series of events that started in 1971 with the American decision to suspend convertibility of the dollar and was followed by devaluations of currency around the world...
...One must ask why the countries that export the particular commodities needed to prevent this tragedy do not feel as obliged to increase their output for the international good as they believe the oil producers should be...
...First, the oil companies have all gained tremendously from the higher prices...
...In addition, any power attempting something as foolhardy as occupation would inevitably lose whatever standing it had with the Arabs...
...Yet what is sacrosanct about a status quo based on Israel's arrogant refusal to carry out the numerous resolutions passed by the United Nations...
...Seabury fails to consider the danger of confrontation with the Soviet Union, or the prospect of a prolonged guerrilla war...
...As for the United States, its considerable degree of energy self-sufficiency has placed its products in an advantageous competitive position now on the world market, since the European and Japanese economies are dependent on imports from opec...
...In other words, Seabury is blithely recommending that the West seriously contemplate armed intervention-occupying the oil fields should this be thought necessary-to bring the oil exporters to heel...
...A number of Arab producers, including Algeria, Iraq and Egypt, suffer from capital shortages, not income gluts...
...During the first half of 1974, the oil enterprises realized quite unprecedented profits, averaging 68.3 per cent over the corresponding period of 1973...
...The exporters, in short, are hardly alone in profiting from the new oil rates...
...Until then the "big seven" companies (five American, one British and one Anglo-Dutch) dominated the industry, both by their ownership of most of the world's low-cost oil and by their vertical expansion into refining, transportation and marketing...
...What is really required is a scheme for cooperation between the industrial nations and the oil producers that encompasses all fields of activity relevant to both groups...
...Touma Arida is a research economist on the staff of An-Nahar, Lebanon's leading daily newspaper...
...Consequently," he writes, "Europe, the United States and Japan must begin exploring, in the most realistic and careful terms, the use of force-whether to employ it at all, or under what circumstances it might be employed...
...The Food and Agriculture Organization of the United Nations recently predicted that by the end of this century about 1 billion human beings will have died from hunger...
...This was largely due to the imposition of an exceptionally wide margin between market prices and tax-paid costs in the major opec countries...
Vol. 58 • February 1975 • No. 4
