|Middle East Oil - "Black Gold" For Europe
Europe and Japan are tied to oil from the Middle East an area fraught with tension. What might occur if Middle East nations or the Soviet Union prevent precious oil from reaching either Europe or Japan? OIL MAKES the world go round.
And since oil makes the world go round, a few not-so powerful nations could literally stop the world. How? By shutting down oil wells, blowing up pipelines, stopping tankers from delivering their oil-filled hulks to customers.
The nations in this stop-the-world drama are, in alphabetical order: Abu Dhabi, Algeria, Egypt, Iran, Iraq, Kuwait, Libya, Saudi Arabia, Syria and a few desert sheikdoms. Some of these nations perch atop multiple billions of barrels of oil or sit astride the access routes to the oil glutted countries.
Vital Middle East Oil Although the Middle East is important to the United States because of massive U. S. overseas oil holdings, it is not a matter of industrial life or death. Only three or four percent of America's oil requirements come from that area. The massive U. S. industrial machine can override any oil blackmail or blockage.
This, with other factors, could lead to American disinterest in the Middle East — an attitude which could result in fatal consequences for the area.
But friends and allies — Europeans and Japanese — cannot take the situation so lightly. To Europe and Japan, the thought of a Middle East oil stoppage brings a thousand and one Arabian nightmares.
Middle East oil literally turns the wheels of European and Japanese industry. Japan imports 90 percent of its oil from the Middle East; Britain relies on the Middle East and North Africa for 70 percent of its oil needs; France 80 percent; West Germany close to 90 percent; Italy almost 95 percent.
As a whole, 85 percent of Western Europe's oil is extracted from beneath the desert floors of the Middle East and North Africa. Libya supplies about one third of Western Europe's oil needs. She is Britain's most important supplier. Algerian oil supplies are earmarked for France.
The impact of these statistics is obvious. Western Europe's prospects for industrial growth are directly linked to a continuing and unimpeded access to Middle East oil. If another outbreak of fighting, or some other political factor stimulates Arab oil producers or transit nations to new embargoes, the very future of the Common Market could stand in jeopardy.
You can be sure Europeans will not take such a dangerous situation with a shrug of the shoulders.
Economy Tied to Oil Like it or not, Europeans are hooked on oil. Nuclear energy production has fallen way behind schedule. While natural gas is entering the field, coal production is running down. Coal's share of the energy market has fallen from 56 to 27 percent in ten years. Oil's share has doubled from 32 to 60 percent.
In spite of new oil discoveries such as the one-million-barrel-per-day production of Nigeria and Indonesia, oil consumption is rising out of sight. European and Japanese customers are as dependent on the Middle East oil as they ever were. There can be no cutting of the umbilical cord between the two. Middle East and North African oil, the industrial lifeblood of Europe and Japan, must continue to flow.
Western Europe, with a population of 354 million people, is guzzling oil and the full range of oil products gasoline, jet fuels, fuel oils, lubricants — at the voracious rate of 12 million barrels each day.
This is three times their consumption of ten years ago. Predictions, notoriously shortsighted, say that the need for oil will double by 1980.
Japan is also a prisoner of oil. Even in 1958, Japan was the world's seventh largest oil consumer. She has gradually but steadily climbed the list since then. Besides, Japan has no present promise of large natural gas supplies which Europe hopes to count on. Japan's existing nuclear power industry is still too fledgling to make any appreciable dents in her energy needs.
Japan must be nurtured on oil if she is to grow 15 percent annually in her GNP and become Dai [chi — "Number One" by 2000 A.D. Japan already burns 3.4 million barrels of oil per day, and is forecast to consume over 10 million in 1980. After that, it's anyone's guess.
Yet, oil-poor Japan must presently rely on the Middle East for anywhere from 85 to 93 percent of her oil — depending on who is doing the counting.
Clearly, oil requirements put Japan in a very vulnerable economic and military position.
What of the Future? In the light of Japan's and Europe's oil vulnerability, the particularly annoying questions are: Will Middle East and North African oil flow unimpeded in the 1970's and 1980's? If oil flow is slowed or blocked simultaneously by a consortium of nations, what will be the reaction of both Europe and Japan? Would either Japan or Europe (or both) forcibly intervene militarily in the affairs of the obstructing nations to uncork the flow?
Is the growing influence of the Soviet Union in the Middle East a threat to industrial development and stability of Western nations? Could a world war result over restricted oil supply?
Some of these questions may seem farfetched to those unacquainted with the importance of oil. But these are real dilemmas faced by European and Japanese statesmen who must deal with the realities of Middle Eastern, North African and Soviet politics.
Oil is a massive industry. It is the single most important item in world trade. Yet, the greatest possibilities for growth in the industry still lie in the future. A few simple statistics show why. By 1950 twice as much crude oil was produced as in 1945. Ten years later production again doubled to 1,000 million tons. By 1968, the amount produced had again doubled. The prospect (almost always too conservative) is for oil production to double once again by 1980.
Therefore, an oil crisis alone could lead to war in the Middle East. Today, the United States alone is providing a peace-keeping balance of power in the area. But suppose the United States should make the gross political blunder of eliminating itself from the Middle East arena? An Armageddon could result.
Oil Sparks a World War? In order to portray graphically how political events surrounding an oil stoppage could lead to a war involving many powerful nations, consider the following fictitious, but wholly possible scenario of the future:
It is November, 1977. Winter is coming on and Europe has increased fuel needs.
A federation of Middle East nations called the United Arab Union has been involved in months of stormy haggling over oil prices. They now decide to put the squeeze on the foreign-owned oil companies and their paying customers, hoping to increase revenues. The nations in the federation are Egypt, Libya, Syria, Sudan, Algeria and South Yemen.
Syria takes the first step. Army personnel blow up the Tapline and other pipelines carrying oil from Saudi Arabian and Iraqi oil fields. Simultaneously, Egypt closes its supertanker pipeline from the Red Sea to the Mediterranean. Libya and Algeria, supplying a good share of the oil needs of Germany and France, shut down their wells. Oil flowing to Europe from west of the Suez Canal has been effectively halted.
More importantly the Soviet Union, seeing a resurgent Europe on its Western border and a mighty Chinese-Japanese combine on its Eastern flank, makes its now-or-never move.
The Soviet Union, secretly backing the United Arab Union oil embargo, uses its bases on both sides of the Strait of Hormuz to blockade any oil leaving Iraq, Iran and other sheikdoms. It moves troops into South Yemen at the request of the Arab states. From its Socotra base in the Indian Ocean, Saudi Arabia and the east end of the Red Sea are blockaded. All this is done in defiance to political handslapping by the U. S. As a result of Soviet actions, no oil can leave the area.
Europe's Panicky Reaction Europe and Japan are in turmoil. Worried leaders quickly assemble to assess the options open to them.
Industrial leaders pressure their governments to get oil flowing immediately. "Unless it does," they say, "reserves will soon run out, wrecking Europe's industries." The public is up in arms. Soon there will be fuel rationing and higher prices. In time, as fuel runs out, transportation will grind to a halt. The job market will be catastrophically affected.
But diplomatic talks are having no effect. The United Nations, as usual, is powerless to act. The Soviet Union has just vetoed consideration of the problem in the Security Council. Public, industrial and economic pressure increases to the breaking point.
In secret, the ten Common Market nations agree that the only road to survival is an invasion of the Middle East and the seizure of oil sources and transit points.
As a result, European troops — part of the military arm of the Common Market — make three simultaneous invasions. From friendly Israel, European troops smash across the delta region of Egypt. Objectives? Open the Suez Canal and the Alexandria pipeline, then roll across Egypt and invade Libya. From the west, European troops land in Tunisia. Their object is to conquer Algeria and link up with troops fighting west across Libya and to reopen these vital oil sources.
At the same time, the European Navy is furiously making its way through the Suez Canal to reopen the Red Sea shipping lanes and break the Soviet Union's Indian Ocean blockade.
They also hope to link up with Japanese naval vessels attempting to smash their way through the Straits of Malacca into the Indian Ocean from the East.
To support this action, troops strike south through Egypt, the Sudan and Ethiopia.
Action In the North In the North, European troops have struck Lebanon and Syria to reopen those vital pipelines. Next object is a twofold drive across Jordan/ Iraq and into Turkey to capture the Dardanelles and blockade Russian naval forces in the Black Sea.
But the Soviet Union has already moved troops into Turkey, Iran and eastern Iraq. Massive concentrations of Soviet troops and military equipment are poised on the Euphrates river.
They spearhead across Iraq and Jordan bringing European and Russian troops face to face along the Jordan River.
Russia — fearful of an attack into her European heartland to the north — remembering the days of Frederick the Great, Napoleon, and Hitler — strikes first, showering Western Europe's industrial centers with missiles carrying nuclear warheads. In the Far East, along the Amur River border between China and the Soviet Union, a mini-nuclear war is already in progress. World War III is on in full fury.
An impossible scenario? We shouldn't be too sure. The stakes are high. Middle East and North African oil is presently the lifeblood of Europe and Japan. Neither can exist without it.
A Possible Arab Reaction Neither should we assume that the Arab nations will necessarily act in their best economic interest. It is true that oil provides Middle Eastern governments with an overwhelming amount of their revenues. About 95 percent of Kuwait's, 79 percent of Libya's, 77 percent of Saudi Arabia's, 56 percent of Iraq's and 50 percent of Iran's revenues come from oil.
But these nations do not always act rationally from a business point of view. Iran, Moslem but not Arab, shut down its oil installations to its own detriment in 1951.
Two decades later, during January 1971, painful negotiations were in process in Teheran, Iran between a score of oil companies and the ten OPEC (Organization of Petroleum Exporting Companies) nations.
During a press conference in late January, the Shah of Iran, normally a moderate, urged all ten OPEC members to take concerted action and halt oil exports should the companies fail to come to reasonable terms.
"If that happens," said an executive of a U. S. oil giant, "there would be complete and utter chaos in Europe and Japan." Fortunately, the oil companies came to terms.
The oil producer nations are not the only ones having a dangerous leverage. The transit countries can also wield a blackmail stick. And they have less to lose.
Egypt, for example, is basically a transit country. Its "pipeline" — the Suez Canal — has been shut down since the Six-Day War in 1967. Consider what has been the consequence.
By the end of 1970, oil freight rates from the Persian Gulf to Europe were more than SIX TIMES what they were in early 1967.
With this calamity, plus a closed Trans-Arabian pipeline (severed "accidentally" by a Syrian farm tractor May 3, 1969), and an inadequate tanker fleet, both the prosperity and national security of Western Europe were threatened.
There has been, as a result, a gradual but detectable shift in European policy on the Arab-Israel confrontation. Europe has been mustering a mounting determination to get some kind of settlement in the area to free the flow of oil through Suez.
A New Oil Tactic Meanwhile, Egypt has come up with a new ploy. Its idea is to have Middle East and North African oil producers simply refuse to expand present output. This would maintain a high level of income for oil producing nations but would create an acute oil shortage in a Western Europe geared to an ever increasing rate of consumption.
With a European rate of increase at one million barrels per day — or a 12 percent increase yearly — Europe cannot put up with the kind of nonsense advocated by the Egyptians.
But at the present time "Egypt" is not simply the political boundary we know as the nation of Egypt. It is a federation of several nations. Recently, the presidents of Egypt, Libya, and Syria formed a "Union of Arab Republics," binding their countries into a federal union with one president and a common military policy. The new state will be established after national referendums on September 1, 1971. It will be open to other Arab countries. Sudan will probably join later. Everyone, of course, realizes that Arabs are prone to fall out with each other. The signing of the confederation in Benghazi, Libya came on the eighth anniversary of a similar pact signed by Egypt, Syria and Iraq. It was dissolved a month later.
The Power of a Federation In 1958, Egypt and Syria federated as the United Arab Republic with a common flag. Yemen joined later. It was dissolved in 1961. Three years later Iraq, Egypt, Kuwait, Jordan and Syria announced the formation of an Arab Common Market. It never came to pass.
Nevertheless, this is no assurance that the present union will also break up. And consider what the Union of Arab Republics could do to oil shipments if it wanted to.
Libya produces 3.4 million barrels of oil today. As mentioned, it is a major supplier of oil. Libya could also put pressure on Algeria to impede oil flow. Meanwhile, the Suez Canal is closed. Also, a new pipeline is being constructed from the Red Sea to the Mediterranean. It will accommodate supertankers at both ends.
At the same time Syria sits astride pipelines carrying Saudi Arabian and Iraqi oil to the Mediterranean.
By simultaneous agreement, oil producing countries could put the squeeze on oil to Europe. The real situation does not fall far short of the possibilities mentioned in the scenario earlier.
It is little wonder that the United States has recognized the Middle East to be of prime strategic importance from its oil deposits alone. The landing of American troops in Lebanon in 1958 and the British troop landings in Kuwait in 1961 both had the smell of oil about them.
The American sponsored CENTO (Central Treaty Organization) has had as its objective the protection of U.S. dominated oil producing areas of the Middle East.
Basically the pact has been a fizzle. Only Iran joined, of the oil producers. The pact also bound Turkey and Pakistan. (Previously it was called the Baghdad Pact but in 1958 Iraq dropped out.)
In the light of oil's strategic importance, some planners feel United States support for Israel is the most tension producing element in Middle East politics. It makes American oil interests a tempting target for the Arabs should major hostilities with Israel resume. Europeans also have a difficult time balancing support for Israel and their utter dependence on Arab oil. For their part, the Arabs simply do not understand why the oil companies seem to have no influence on U. S. foreign policy in the area. Because, after all, oil is big business and it is basically American.
Oil Is Big Business Of the major international oil companies — called the Seven Sisters — five are American owned. The largest is Standard Oil of New Jersey which trades through most of the world under its "tiger in the tank" Esso name. As one oil expert pointed out, ironically in the U. S., the national trading subsidiary is called Humble oil — a most amusing name in the light of its strength and size!
The two remaining majors are British Petroleum and Shell. Shell is Dutch British owned. Its operational and commercial headquarters are in London. The U. S. Shell Enterprise contributes one third to the total worldwide Shell group's revenues and one third of its profits. Technically and organizationally Shell is American oriented.
As a result, the U.S.A. is the world's largest producer, refiner and consumer of oil. Assets of some 5,000 million pounds are invested in oil abroad, by U. S. companies, accounting for one third of total U. S. foreign investments.
U.S. companies produce 100 percent of Saudi Arabian oil, 75 percent of Libyan oil, 59 percent of Kuwait's oil, 40 percent of Iran's and 25 percent of Iraq's.
A sagging U. S. balance of payments is bolstered by more than one billion dollars in profits remitted annually by oil companies from operations in the region.
With the economic importance of oil to the United States and the strategic importance of oil to Britain and Western Europe, the spreading influence of the Soviet Union in Egypt and the Middle East, Persian Gulf and Indian Ocean is traumatic.
In the light of the advances being made by the Soviet Union today it is quite possible that the Russian bear will someday also be able to carry out its part of the scenario depicted at the beginning of this article.
The Soviet Union is the dominant power in the Arab nations that border the Mediterranean. A new 15-year pact with Egypt puts the Soviet Union squarely in the driver's seat in that crucial nation. Also, the Russian Navy already has a string of bases- some still unconfirmed — throughout the Indian Ocean area. Controlled from the Indian Ocean is the access route to the Persian Gulf. From that area ships carry the incredible oil output of ten Persian Gulf states — they include Iran (3.3 million barrels per day), Saudi Arabia (2.9 million barrels per day), Kuwait (2.5 million barrels per day), Iraq (1.5 million barrels per day).
Whoever controls the Indian Ocean and sits astride the Strait of Hormuz "chokepoint" controls the Persian Gulf. The Kremlin is out for that control.
Consider also that the Soviet Union has gotten into the Middle East oil business.
Soviet Union in the Oil Business An agreement signed in Moscow, July 4, 1969 between Iraq and the Soviet Union obliges the latter to "prepare and put into operation" the oil fields of North Rumaila. The immediate production will be 100,000 barrels of oil daily. This is to increase to 365,000 barrels daily.
The North Rumaila field is to be ready for operating by the first quarter of 1972. "The Soviet-Iraqi agreement," according to oil expert George Stocking, "constitutes the most significant development in the recent history of the Middle East oil industry... It marks Russia's first foothold in an important Middle East oil-producing country" (Middle East Oil, Vanderbilt University Press, 1970, p. 315).
Interestingly enough on June 25, 1961 Iraqi Prime Minister Abdul Karim el-Kassem announced that his nation had a claim to Kuwait. Could future Russian backing impel Iraq to make good on such a claim?
Also, Iraq and Iran are still conducting a virulent propaganda war with each other. Iranians fear that Iraq may be pushed into a more extremist attitude by Russia.
Skipping across the Middle East to the other chokepoint — Egypt and the Suez Canal — we find the Russians have also had a long and sustained interest in this area. They are also, as mentioned, well ensconced there today.
Europe's New Interest Europe is waking up to the fact that the Soviets are out for control in the Middle East. Although its presence is still limited, Europe will no doubt be forced to take the bull by the horns and make itself felt economically and in other ways, if necessary.
One method involves economic assistance. Egypt is planning a large 42-inch pipeline from Suez to Alexandria capable of transporting 50 million tons of oil per year. This will increase to 75 million tons. There will be facilities for loading and unloading the largest tankers now anticipated.
Mannesmann AG, Europe's biggest pipe producer has been given Bonn's blessing to participate in the Egyptian pipeline project.
Bonn officials argue that Western involvement in Egypt's economic development is necessary to prevent a repetition of the Aswan Dam "mistake." The West's refusal to participate resulted in the subsequent entrenchment of the Soviet Union in Egypt.
Germany will join a consortium of nations, including Great Britain, France, Italy, and Spain which will build the pipeline. European money will be partially responsible for development of the 207-mile pipeline.
Since 1967 West Europeans have been reassessing their junior role in the Mediterranean and Middle East. As reported in the "Advance News" section of this issue (see page 17) the Common Market's official monthly journal, European Community, expressed concern over the Middle East crisis.
"The European Community [Common Market] has a vital interest in the maintenance of peace in the Mediterranean ..." the European Community article stated.
"If the Community had been a political power early enough," this official magazine continued, "it might have been able to prevent the establishment of enemy positions by the two superpowers in the Mediterranean with its attendant danger of provoking a world conflict."
Our report in this month's "Advance News" section continued with these observations:
"The Common Market countries are expected to draw up newer, more concrete policies toward the Middle East. It was less than a year ago that foreign ministers of 'The Six' started regular meetings on developing common foreign policy.
"Former Common Market president Jean Rey recently noted with satisfaction that Common Market members now are making efforts to harmonize their foreign policies. But he was 'ashamed' that Europe has not spoken out with a single voice on the crisis in the Middle East, which so deeply affects European interests."
In accepting the proposals of one French-sponsored peace treaty, the Europeans clearly have given priority to keeping and making friends among Arab states — the holders and transmitters of vital oil.
Japan in the Middle East Japan is also in the move, having committed herself to large exploration expenditures by successful competitive bids for onshore and offshore acreage in the very promising oil-bearing zone of Abu Dhabi. These concessions were won by a group of Japanese companies in the face of international competition from established oil producers.
There is bound to be increased competition between Russians, Japanese and Europeans for Middle East oil. At present, the situation is only mildly threatening. Overall, there is often remarkable cooperation.
For example, Japan and Russia — traditional rivals — have agreed to build a pipeline from Siberian oil fields to the USSR Pacific coast to supply Japanese oil needs.
But cooperation has gone further than this. A short-term problem of transporting Soviet oil to Japan arose from the closure of the Suez Canal. The dilemma was solved in a most happy manner. Iraq and British Petroleum joined Japan and the USSR in solving it. Soviet oil to Japan was replaced by British Petroleum oil from Iraq. In turn, British Petroleum took an equivalent amount of Soviet Crude oil out of Black Sea ports for use in its Western European markets, whose normal supply from east of Suez had been disrupted.
Everybody profited from the cooperation and a problem was solved in the highest form of international statesmanship and business.
It is hoped that all peoples involved — Europeans, Soviets, Arabs, Japanese, oil companies, others — will continually cooperate 100 percent to solve their disputes and problems.
The record of history is, however, not reassuring. Nations are bound together only as their national interests coincide. The fear is that Soviet, Arab, European and Japanese national interests will end up in great conflict — with the real possibility that the struggle for oil, the political mineral, could spark a Mideast war dwarfing the current Jew-Arab conflict.