Page 331 - Arabia the Gulf and the West

328 Arabia, the Gulf and the West

quota fixed by mutual agreement. Yet, while posted prices were not raised
to their pre-1959 level, neither were they lowered in these years, despite the
fact that at one stage selling prices were some 30 per cent below the posted
price. It need hardly be said that the benefit of a constant posted price to
the governments of the oil states, whose revenues were calculated on the
basis of the posted price, was considerable. Moreover, the companies
agreed in 1964 (though not without misgivings, since the oil market was well
down) to deduct the royalty payments they made to the concessionary
governments before reckoning their profits, half of which were paid to the
governments in tax. As partial compensation to the companies for increasing
their revenues, the concessionary governments agreed that posted prices
should be reduced by 8.5 per cent from 1 January 1965, diminishing to 7.5 per
cent in 1966 and to 6.5 per cent in 1967 - a concession which was an implicit

recognition by these governments that posted prices were in excess of market
prices. The effect of the expensing of the royalty payments by the companies
was to divide their actual profits, not in the proportion of fifty-fifty as
provided for in the tax agreements, but more of the order of sixty-forty in
favour of the concessionary governments.
For all this, the governments in question were still dissatisfied, having long
since convinced themselves that they were being fleeced by the oil companies
with the active encouragement of the governments of the Western industrial
countries. Against all factual evidence to the contrary, they refused to believe
that fluctuations in the price of oil or the volume of consumption had anything

to do with world demand or the normal workings of the market. Small matters
like the dumping of large quantities of oil on the international market by the
Soviet Union in the 1960s were dismissed as mere irrelevancies. Instead, the
governments of the producing states preferred to attribute any fall in produc­
tion, and any consequent decline in revenues, to the workings of a grand
conspiracy on the part of the oil companies to deprive them of their economic
heritage. Despite the rise in their annual revenues from $1,861 million in 1963
to $3,370 million in 1968, they were still avid for more, their appetites being
stimulated by the need to finance the costly schemes of development upon
which some of them, and Persia in particular, had lately embarked. They were
consequently on the look-out for any opportunity to augment their revenues,
and such an opportunity came their way with the Arab-Israeli war of 1967 -
although it was an opportunity that was not without its risks and disquieting

moments. . nd
Up to 1967 the major Arab oil-producing states, Saudi Arabia, Kuwait a
Iraq, had consistently refused to entertain the notion, which every year was
given a ritual airing at the convening of the Arab Petroleum Congress, o using
their oil resources in the Arab campaign against Israel. Even Iraq,which u" .
its Baathist rulers had become one of the most vocal advocates 0
solidarity and war a outrance with Israel, preferred to keep the subject o