Page 369 - Arabia the Gulf and the West

366 Arabia, the Gulf and the West

sought and obtained business review letters from the United Slates Depart­
ment of Justice in October to enable the companies to negotiate jointly. The
safety-net sharing agreement of the previous January was also reactivated to
protect any oil company which might suffer a cut in production (or even be
denied oil supplies altogether) as a punishment for opposing OPEC’s
demands. Yamani had raised the possibility that one or more members of
OPEC might resort to a cut-off of supplies to get its way in one of his
conversations with Piercy at Tehran in January. Drawing the latter’s attention
to the lack of spare producing capacity available to the companies anywhere

outside the OPEC area, compared with the state of affairs a few years earlier,
Yamani remarked: ‘You know the situation better than I. You know you
cannot take a shut-down.’ Whatever limits there might be to spare producing
capacity, however, there was no actual shortage of crude oil in the world in the
last quarter of 1971 - certainly none that, in normal market conditions, would
have justified an oil price increase, even to compensate for the slight fall that
had occurred in the value of the dollar. Yet in the years that have elapsed since

1971 OPEC and its apologists have alleged that there was a surge in demand for
oil in 1970-71 which transformed a buyer’s into a seller’s market. The facts of
the case are different. The increase in consumption in 1970 over that of 1969
was below the average annual increase for the decade 1960-69; and the increase
in 1971 over 1970 was only about half the average yearly increase for the same
decade. As supply actually exceeded demand, prices should correspondingly
have fallen. That they did not was due, not to the transition from a buyer’s to a
seller’s market but to OPEC’s success in forcing an upward revision of prices at
Tehran at the beginning of 1971 by the threat of an embargo upon oil exports.

Following the OPEC conference at Beirut it was arranged that talks between
the organization and the companies over equity participation and the dollar-
depreciation adjustment should open in Geneva in January 1972. Before they
could begin, however, the Libyans again upstaged their fellow OPEC actors.
The RCC had tried in November 1971 to effect an indirect revaluation of the
Libyan dinar, in which Libya’s oil revenues were normally paid and which the
oil companies were obliged to purchase from the Libyan central bank, by
requiring the companies to obtain their dinars at the rate of $2.94 instead of

$2.80 per dinar. As the dodge, if it had succeeded, would have cost the
companies an extra $75 million a year in revenue payments, they natural y
dragged their heels in complying. To intimidate them, the Libyan govern­
ment froze a portion of Esso’s Libyan bank deposits. Something more spec­
tacular, however, was called for before the Geneva meeting, if Libya was to
maintain her reputation as the holy terror of OPEC. Opportunity fortunate j
knocked at the end of November, when the shah’s troops seized the Tun san

occupied Abu Musa Island. Qaddafi, arrayed in all his effulg^nCe. -r
the champion of Arabism and Islam, smote the imperialist Brins
underhand collaboration with the Persians by nationalizing Bl