ECONOMICS AND THE CITY
Calling our oil bluff
It was very wise of Lord Balogh to retire from his office as Minister of State — in charge of oil — at the Energy Department on reaching what the Chinese would regard as the comparatively Young age of seventy. There had been such a rush of oil to the heads of his political bosses
humiliated we British found ourselves horribly !iumiliated at the recent EEC summit meeting
in Rome when we tried to get a special seat at the coming world energy conference. Our oil
bluff had been called. It was left to the German Chancellor to remind the Prime Minister that I've were not yet a major oil exporter and that in ,the meantime we still needed financial help from the EEC as well as the IMF. I am not accusing Lord Balogh of being resPonsible, as Sheikh of North Sea Oil, for this humiliation. As the Crossman diaries reveal, his Political sense of touch is highly developed. But it cannot be denied that Labour Party econoMists have worked up an unreasonable bias cigainst the international oil companies. I trace s back from Lord Balogh to the Cambridge Revenue — the Lord Kaldor at the Inland "venue and Robert Nield who became Economic Adviser at the Treasury in the 1964 Labour government. They convinced Labour Ministers that the international oil companies ,were all brigands and had been cheating the
irea silly over tax for years and years.
Of course, the oil internationals had been taking full advantage of the then double taxation rules, so that they paid little or no taxation in the UK. If they had been cheating anybody it was the oil-producing states of the th,Ird world. But there is this to be said in favour or the world oil cartel they ran — it was extremely well organised and operated and it gave us all very cheap petroleum products. When the oil-producing states broke it up and sUbstituted their own world oil cartel — OPEC — we have had the dearest oil ever conceived, Which has not only impoverished the poor 1-1.°n-oil developing nations but disrupted the nnancial system of the developed world and ggravated our slump-inflation. I was horrified .10. hear our prime minister joke about the UK Ining such an anti-social cartel as OPEC nose simple aim is to fleece those nations who are unlucky enough to possess no oil or gas. „, When oil as well as gas was discovered in the i:orth Sea the 'Stalinist old guard' of the ..4132ur Party could not wait to emulate the nationalisation policies of the OPEC go vernezeizs These oil states, having enjoyed the of foreign capital poured into their aonntries to establish their oil and gas fields, e now taking over the concessionaire I-tuMPanies, as Iran did under Mossadeq, and ut:fling them into off-shore buyers. So Socialist Jtain is now confronting the North Sea oil Mpanies with a 51 per cent takeover. While it
is right and proper for the state to control the rate of oil field exploitation and to impose a special petroleum tax (which was, in fact, a very reasonable tax, as I have argued here), it was very foolish of this Labour government to demand 51 per cent when, being up to its eyes in debt and heavily over-borrowed at home and abroad, it could not raise the finance for compensation without causing another slide in sterling and a slump in the gilt-edged market. Nor is it certain that an equity share gamble in North Sea oil is worth the huge capital risk. By pushing the price up to $12 a barrel the OPEC cartel has for the time being guaranteed a profit on North Sea oil, which will cost anything up to $9 a barrel landed at the refinery, but can the OPEC cartel survive a long world trade recession? Already a price-cutting war among the big oil retailers is emerging which may yet break the OPEC front. I am convinced that the correct oil policy for a British government with a weak currency would have been to attract all the foreign risk capital it could to exploit these very expensive, difficult and dangerous submarine oil fields and rake in a handsome revenue from royalties and the special petroleum tax. Instead, Labour has frightened off a lot of foreign capital by the threat of nationalisation and delayed by a year or more the exploitation of the fields by not making up its mind quickly about taxation and its policy of grab. As Herr Schmidt reminded Mr Wilson in Rome, we are not yet a major oil exporter. So far we have brought in two or three small fields and one major one — the Forties — but it will be 1976 before Forties, operated by BP, reaches 200,000 barrels a day and 1977 before it gets to its peak of 400,000 barrels a day. By 1980 we might be able to meet our current oil consumption (now 1,700,000 barrels a day) and export a little to help pay our overseas debt charges. But let no one suppose that we have in the North Sea oil fields comparable with the prolific fields of the Middle East. We shall be lucky if they last twenty years. And the cost of production will always be ten times more than in the Persian Gulf.
The Labour Party bias against the international oil companies may be responsible for the shabby treatment of Burmah Oil. Nothing good can be said of the old management, which incurred tanker losses running into the staggering figure of nearly £50 million by the middle of this year. But when it went cap in hand to the Bank of England instead of begging from one of our American oil rivals it did so to protect the national interest in its large 21 per cent holding of British Petroleum. The Bank bought this holding at the bottom of the market for £179 million; it is now worth £450 million. When it comes to re-selling the BP shares at an enormous profit the Bank should feel obligated to hand over part of it to the old Burmah shareholders. They were not speculators; they were mostly small shareholders and pension funds and they were never consulted, as they should have been at a general meeting, about the sale of their main asset. To add insult to injury Mr Benn, the Energy Minister, is now offering to buy their company's interests in two North Sea oil fields — Thistle and Ninian — "at a fair price to be negotiated on an arm's length basis." Any deal with Mr Benn would be on an arm's length basis but seeing that an interest in the Thistle field was sold this year to a German group at a discount of around 45 per cent on an estimated 'net' basis, the shareholders of Burmah, selling under duress, can hardly expect a fair price. They have not yet been able to sell their North American interests.
To further its doctrinaire socialisation aims the Labour Government has set up a National Oil Corporation to engage in this cut-throat international oil business which can only pay off (except for the highly paid chairman and his staff) if the Corporation links up with the OPEC world cartel to keep up the world price of oil at a higher level than is economically justified. It is a pretty shameful thing to do, especially as our national interest in North Sea oil could have been perfectly well protected by general tax and environmental legislation.