Page 458 - Arabia the Gulf and the West

The 'Sting1 455

the world oil market by expansion into the secondary and tertiary sectors.

There is little chance that the Gulf oil states could compete on even terms in the
market for refined products. The cost of building and operating refineries,
petro-chcmical plants and petroleum-related facilities in the Gulf is far higher
than it is in the industrial countries. So also is the cost of transporting refined

products as compared with that of shipping crude oil in bulk. Unless the
governments of the oil states are prepared to sustain large losses on their
investments, the prices they will have to charge for their refined products will
make them uncompetitive. Faced with this unpalatable conclusion, they may
well resort to intimidation to dispose of their unwanted output, by making it a
condition of continued access to their reserves of crude that the oil companies

accept a certain proportion of their off-take in refined products - and transport
them in host-government flag vessels.
How the oil companies view their present situation vis-a-vis the Arab oil

states it is impossible to deduce from their rare and excessively sibylline
utterances on the subject. It is hard to believe that they are content with it or
that they are not apprehensive about the future. Perhaps it would be no bad
thing, as some qualified observers have suggested, if the companies were to
withdraw completely from direct operations in the Arab producing countries.

After all, they have lost their raison d’etre for being in these countries, viz.
ownership of the oil reserves. If they were to become simply purchasers of
crude at the pierhead, they could use their position as world-wide distributors
ol oil to negotiate sensible prices, instead of merely bowing to the caprices of
the governments of the oil states and passing on arbitrary price rises to the

consumers. The obvious drawback to this course of action is that the national
oil companies which these governments have set up to assume ostensible
control over oil production and ‘downstream’ activities in their countries are,
most of them, incapable of running the oil industry by themselves. Unless the

Western oil companies were to provide the necessary engineers and technical
staff, they would quickly run the industry into the sand.
However chimerical the ‘partnership’ between the oil companies and the
governments of the Arab oil states has become, the West in general is still
relying upon it to ensure security of oil supplies and stability of prices. The
IEA apart, the Western governments have made no real effort to co-ordinate

their oil policies or to present a united front to OPEC. Instead, they are
pursuing separate and often conflicting national policies, three of the worst
offenders being the United States, Britain and France. The United States
virtually doubled its importation of oil between 1973 and 1976, while that of

most Western European countries remained constant or even declined. Oil
lmPorts into the United States in 1976 were 29 per cent higher than in I975>
an 46 per cent of the total volume of oil imported came from the Arab oil
states, an increase from this source of 83 per cent over the previous year. The

Picture did not alter appreciably in 1977 and 1978. While some of the oil was