The Real Oil Threat

...SURPLUS PETRODOLLARS The Real Oil Threat BY ELIAHU SALPETER TEL AVTV THE RELATIONSHIP between opec and the West, or more precisely the Arab oil producers and Western Europe, is a kind of ideal marriage between a sadist and a masochist, with the Europeans asking for more and more punishment," an Israeli oil expert remarked the other day...

...the fact is, demand for Arab crude has fallen faster than the overall decline in demand for op EC oil It becomes apparent that Venezuela, Nigeria and Indonesia have suffered less of a loss when one realizes that the largest non-Arab cutback has resulted from the chaos in Iran...

...Perhaps the West has indeed become addicted to petroleum, perhaps it does accept Arab demands masocliistically...

...Specialists here are admittedly far from neutral when it comes to petroleum and Arabs...

...The West is thus perpetuating self-fulfilling prophecies about opec's power against its own interests, and at Israel's expense...

...Because of the oil glut, the "oil weapon" as originally conceived by opec's Arab members has lost much of its effectiveness In the absence of a major Middle East war, it will lose still more But as the threat of a supply cut-off wanes, the long-range menace posed by surplus petrodollars looms larger than ever, pointing up the need for the West to develop a common strategy that will enable it to resist further arbitrary price increases...

...According to one widely held "self-evident" tenet, for example, the demand for oil would continue to rise until stopped by a combination of exhausted wells and unbearable prices...

...Last winter, opec production dropped to about 23-24 million barrels daily, compared to a peak of 32 million barrels in 1979 (Current production capacity is 34 4 million barrels ) To fully appreciate these figures, it needs to be remembered that not very long ago the West generally believed opec would be called upon to supply 40 million barrels daily by 1985 in order to keep the non-Communist world rolling Today, man estimate considered too high by some experts, the International Energy Agency asserts that in 1990 opec daily production will be about 30 million barrels, and by the turn of the century only 29 million barrels-0 per cent less than 1979's total...

...And events appear to be corroborating their long-standing insistence that Europe has submitted to the most outrageous Arab demands out of timidity, greed and misconceptions...

...Another tenet, especially favored among Arabists in the West, was that without the proven reserves of the Arab countries it would be impossible to satisfy the world's boundless thirst for petroleum...

...The lesson to be learned from the whole sequence of events has apparently been taken to heart by the world's oil importers There was no real shortage of oil in'73, '74 or '78, panic buying on the spot market was what convinced opec that consumers were frightened enough to accept exorbitant price jumps Western awareness of how past increases had been inspired (plus full storage tanks and backup arrangements for a few of the worst situated importing countries) prevented a stampede for oil when shooting on the Shat-el-Arab started Soothing as the fiction may sound to Arab supporters in the West, Saudi Arabian Oil Minister Sheik Ahmed Zaki Yamani did not have to twist any arms to persuade the cartel to stick to present price levels The inability of opec to capitalize on the Iran-Iraq war, however, has not resolved the problems created by the '79-'80 increases Arab profits continue to be enormous and significantly more dollars are piling up in their coffers than after '74-'75 It will take much longer to balance out current surpluses, let alone assimilate the huge sums The feeling here, therefore, is that the West should intensify the effort to reduce its dependence on opec without worrying too much about being suddenly caught short of the precious black fluid Instead, it ought to be concerned about the effect of the payment imbalances in its trade with the Arab opec countries For no amount of Western financial wizardry can stem the economic hemorrhaging caused by the exorbitant oil prices and the low absorbing capacity of Saudi Arabia, Kuwait, the United Arab Emirates, or Libya Nor can the West safely ignore where the excess billions are flowing...

...Yet the thirst notably has shown itself to be controllable...

...Eliaku Salpeter,aregular NL contributor, is a correspondent for Ha'aretz...

...No less an interested party than British Petroleum has recently speculated publicly that world demand may have crested already...

...nevertheless, there is nothing sick about the behavior of the Arab oil producers," an economist listening to the exchange interjected...

...But such timidity is as avoidable as it is dangerous As the freezing of Iranian assets in the US and the rejection of Saudi/PLO blackmail at the Internatinal Monetary Fund have shown, most often oil bluster is effective only so long as it is not challenged...

...Arab oil earnings have been huge Most of the additional $340 billion in profits taken in by opec since 1974 has gone to Saudi Arabia, Kuwait and the Gulf sheikdoms The funds, going beyond anything the economies of the countries involved could sensibly absorb, came in two big waves, one in 1974-75 and the other in 1979-80 Aftershocks from the Yom Kippur War brought the initial major influx of excess profits, but in the following years the net reserve of petrodollars diminished speedily due to the backlash of opec-induced inflation and the oil producers' expanding appetite for imports By 1978, some of the $155 billion accumulated from the first wave was being used to cover deficits Providentially for opec, though, the ouster of the Shah of Iran and the Ayatollah Ruhollah Khomeini's takeover created a new oil panic and made possible another round of steep price advances In 1979 there was a $70 billion-plus rise in receipts, and for 1980 the added amount was $115 billion...

...The West lacks a clear, complete picture of the interconnections linking its dependence on opec, petrodollars, and world instability Discussion of the darker side of how oil profits have been used to buy up vital Western assets, among them key defense and communications sectors, has been largely missing in the Western media Economic and political influence shading into outright corruption and subversion, not to mention the actual or potential use of Arab funds to advance Soviet interests, have failed to receive the attention they deserve...

...The sharp price increases that gave opec its first big surge of profits had begun to curb oil demand in the mid-'70s, but the full impact of this became evident only in 1980 World consumption plummeted, and the consumption of opec oil was particularly curtailed By the time the war between Iraq and Iran broke out last year, reservoirs were so full that the world could almost dispense with the combatants' oil without significantly tapping reserves The expected run on the spot market in Rotterdam never materialized, dashing opec hopes for another price hike and a third inundation of petrodollars...

...I would rather describe it as a relationship between a pusher and an addict," his colleague responded...

...While it is probably true that, ultimately, the top price for oil will be determined by the cost of alternate sources of energy, the assumption that demand would constantly rise has been belied by its considerable slackening in 1980-81...

...For during the past year many articles of faith shared by Western experts have proved of questionable validity or, at best, short-sighted...

...But they maintain that since oil has been allowed to become the most dangerous Arab threat to Israel's security, they are necessarily the keenest observers of opec's relations with the West...

...In any case, the notion that demand could go only one way-up-has been exploded...

...Indeed, what now disturbs Israelis is that although conditions have patently changed, European policies have not...

...Colonel Muammar Qaddafi's patronage of terrorist groups from every quarter of the ideological compass is by now axiomatic, yet nobody-including the new Reagan Administration-seems ready to do anything against it Saudi Arabia's support of world terrorism through its generous financial assistance to the PLO and Syria is hardly acknowledged And the explosive Middle East arms race-fueled by the uninhibited East-West competition for Arab petrodollars-is taken for granted both by the majority, who consider weapons deals an economic blessing, and the minority, who accept them as an ineradicable evil Meanwhile, terrorism and armaments may soon get totally out of hand...

...They only' utilize to the maximum the weakness of the West, whatever its reason...