Page 455 - Arabia the Gulf and the West

452 Arabia, the Gulf and the West

depression in many industrial countries. To what degree the major oil com­
panies may have co-operated in implementing this policy it is difficult to
determine. The companies themselves maintain that monthly production
levels are determined by market conditions, and that the market for oil early in

1975 was slack. There was no point, therefore, in producing at a higher level
than the market warranted, as excess production entailed additional costs, not
least in transport and storage charges. Yet the fact remains that the cuts in

Saudi Arabian output in 1975 were ordered by the Saudi government and
carried into effect by ARAMCO, even though the Saudis’ motives in ordering
them were transparently clear, viz. to prevent the latest price increase from
being undermined by price-cutting in a buyer’s market, and to allow the other

members of OPEC a sufficient share of the market so as not to tempt them into
discounting their oil in order to sell it. All could then expect to benefit from the
latest price increase when demand picked up.

At first glance, Saudi Arabia’s actions in 1975 would appear to indicate that if
she is to play the role of residual supplier at all, she will do so in OPEC’s
interests, not the West’s; and substance is lent to this view by Yamani’s
frequently repeated claims in the past that Saudi Arabia’s financial needs could

be met by a daily production of 4.5 million barrels. Yet the situation is not quite
as clear-cut as this. When world demand for oil fell in 1976 and 1977 Saudi
Arabia increased her production, from 7.1 million b/d in 1975 to 8.5 million

b/d in 1976 and to roughly 9 million b/d for the first six months of 1977-
Together, Saudi Arabia and the UAE (i.e. principally Abu Dhabi) increased
their oil exports in 1976 and 1977 by 120 million tonnes, while all the other
Arab oil states combined increased their exports by 30 million tonnes. Saudi

Arabia, in other words, at a time when demand was slack, raised her produc­
tion as she saw fit, kept oil prices steady and increased her share of the market
at the expense of her Arab partners in OPEC. Her conduct has been a
repetition of what it was in 1971 and 1972, when she raised her output by 26 per

cent in both years while that of Iraq, Libya and Algeria declined. That she
intends to go on this way was indicated by the loquacious Yamani in September
1977, when he warned that Saudi Arabia would not increase her production
above 8.5 million b/d to meet the industrial world’s needs unless some progress
was made towards a settlement of the Arab—Israeli dispute. As production at

that time was 7.65 million b/d the warning did not carry a great deal of weig
An even stronger pointer to Saudi Arabia’s intended policy was; thei con­
dition laid down by the Saudi government, in its negotiations with AR

for the complete nationalization of the company’s concession and assets,
the company should lift a minimum of 7 million b/d of Saudi oil. ^gni
penalties would be imposed if ARAMCO’s off-take fell below hi.figure
which was equivalent to 20-25 per cent of OPEC’s total average dai.output

1976 and 1977- Yamani’s nonchalant pretence that 4-5 or even 4 mi
sufficient to meet Saudi Arabia’s financial needs is plainly a thing