Page 345 - Arabia the Gulf and the West

342 Arabia, the Gulf and the West

lamentable consequences of allowing transitory market conditions (in the case
of the Libyan capitulation, the temporarily severe demand for oil in Europe in
the spring and summer of 1970) to bring about the abandonment of principle

and logic in treating with the oil-producing states of the Middle East. Not only
the oil companies but the oil-consuming countries as well were now faced with
the prospect of repeated ‘leap-frogging’ of prices by the members of OPEC,
backed by threats of curtailed production, appropriation of assets and disrup­
tion of oil supplies.

As might have been foreseen, the Libyans, cock-a-hoop over their victory in
the autumn, decided to pre-empt the outcome of the negotiations due to begin
at Tehran in the middle of January 1971 • On 3 January the representatives of
the oil companies in Libya were summoned by Major Abdul Salem Jallud,
Qaddafi’s closest confidant in the RCC, and told that, in conformity with the

Caracas resolutions, Libya’s tax rate was to be raised to between 59 and 63 per
cent — figures which were said to represent the new tax rate of 55 per cent laid
down at Caracas plus the increase to which the companies had agreed the
previous autumn as compensation for ‘under-payment’ of oil revenues since
1965. The folly of allowing themselves to be browbeaten into signing explicit
written acknowledgements of this alleged under-payment was now brought
home to the companies. These ‘confessions’ were henceforth to be used by the
junta to ensure that, whatever tax rate OPEC might decide upon, the Libyan
tax rate would remain above it by a margin of several percentage points, as
compensation for previous ‘under-payment’. Jallud also stated that the posted
price of Libyan oil was to be raised by 69 cents a barrel to eliminate what he
called ‘excessive windfall profits’ earned by the companies as a result of
replenishing Europe’s oil stocks. Payment, or an appreciable part of it, was to

be retroactive to the closing of the Suez Canal in 1967. The companies were also
told that they would be required to reinvest in Libya the sum of 25 cents for
every barrel of oil they exported, and to pay taxes and royalties by the month
instead of by the quarter. Finally, even though the effect of the new payments
was to double the price of Libyan oil from that fixed only three months earher,
after Qaddafi’s offensive against the companies, the Libyan government,
Jallud announced, would also expect to receive any increases agreed in the
forthcoming negotiations at Tehran. So much for the five-year agreement on
posted prices which his government had signed the previous September- ut,

then, circumstances had changed.
As in its initial offensive, the RCC picked upon the independent compame
as soft targets. On 9 January Occidental and Bunker Hunt were told by Ja u
that they had one week in which to accept the new terms. The ultimatum1 wa
accompanied, as in the case of the diktat to the companies a week earlier, y
familiar threats of curtailment of production and nationalization.
meetings Jallud had been insistent that the coercion of the oil comp