26 JUNE 1947, Page 8



LAST month's advance in petrol . prices was a reminder of the dominant role still played by the United States in the inter- national oil-trade. Representing less than 7 per cent, of the world's population, the American people account for nearly two-thirds of its oil production and consumption. When, therefore, as has happened recently, the price of petroleum products rises in the United States it is not surprising that the consequences are fell the world over. Nevertheless, far-reaching changes now taking place in the U.S. posi- tion are likely progressively to diminish the traditional importance

- of the American role. Until recently U.S. production was sufficient, not only to provide on the most lavish scale for home requirements, but also to make the country the leading oil-expor:er of the world. This, indeed, is the reason why oil prices everywhere are still linked with those quoted at the Gulf of Mexico. But this year, for the first time, America is destined to import more oil than she sells abroad ; and unless unprecedented quantities of new oil are discovered at home her dependence upon imported supplies will steadily increase. This prospect, unpalatable as it is in Washington, has inevitably had its effects in the diplomatic and political fields.

In the depression years before the war, over-production in the United States was a constant threat to the stability of the world oil- market. Years of reckless exploitation have, however, taken a steady toll of the country's oil reserves, with the result that production, though now on a much higher level than it was before the war, has been steadily overtaken by demand. With a daily output of over 700,000 tons (compared with less than 5oo,000 tons as recently as 1938), the American oilfields are producing at very nearly the maxi- um efficient rate. Production and consumption are now roughly in balance, but State Department experts have forecast a demand approaching t,000,000 tons a day by 1965, necessitating heavy im- ports from overseas. This knowledge that it is ceasing to be self- sufficient in one of the most essential of all materials has in recent years caused the United States Government to take an increasing interest in the rich reserves of the Middle East. There, in the coun- tries around the Persian Gulf, lies an almost fabulous wealth of oil. For our purpose the area may be regarded as a unit, though six countries are at present concerned. They are: Persia, with six oil- fields ; Iraq, with two ; Saudi Arabia, with three ; Kuwait, the Qatar Peninsula and Bahrein island, with one field each. The reserves already proved by the drill in these six countries considerably exceed the proved reserves of the United States, and there is not the slightest doubt that vast additional quantities remain to be opened up. From now on, these resources will be the object of rapid development. In the last pre-war year, Middle Eastern production—which then came only from Persia, Iraq and Bahrein—was no more than 16,000,000 tons. Last year, with Saudi Arabia and Kuwait in the picture, it jumped to twice that figure. Four years hence it may well be running at the rate of 85,000,000 tons annually. In al very short time, therefore, the arid and backward lands of the Middle East will, together, constitute the most important oil-exporting area of the world.

The contrast between conditions in these new fields and those of the United States is startling. For example, the discovery of this vast quantity of oil entailed the drilling of less than 150 exploration

wells an astonishingly low figure when it is recalled that over 3,000 " wildcat " wells are drilled in the United States every year. Again, each field in the Middle East is operated as a unit by one company, whereas most American fields have been exploited by a host of different owners, each spurred on by the law of capture to grab the utmost for himself, lest others should drain the common pool. A natural corollary is that the yield of each well in the Middle East is fantastically high judged by American standards. Consider, for example, the vivid contrast between conditions in the two largest oilfields of the world—East Texas, in the United States, and Haft Kel, in Persia. The latter is at present producing about 9,000,000 tons of oil a year from no more than 24 wells ; the former is producing less than double that quantity, but has a thousand times as many wells. If each hole has five hundred times the yield, it goes without saying that costs of production must be very much lower in the Middle East than they are in the United States.

The advantages are not, however, all on one side. Apart from the inferior quality of their oil, the Middle East producers are handi- capped by their distance from the markets of Western Europe. London, for instance, is 6,5oo sea-miles from the Persian port of Abadan, but only 5,000 miles from Houston, on the Gulf of Mexico ; so it costs 57s. 6d. a ton to bring Persian oil to this country, against 38s. from American Gulf ports. This is the reason why the com- panies operating in the Middle East intend to lay giant pipe-lines —one from Persia and another from Saudi Arabia—to the Mediter- ranean seaboard. Though these lines will require a huge investment of capital, they will certainly pay for themselves ; for they will reduce the sea voyage to Europe by 3,000 miles and, incidentally, save the Suez Canal dues. Indeed, the construction of these new pipe- lines, and the trebling of the existing lines from Iraq, are essential preliminaries to the planned extension of Middle Eastern oil production.

When these gigantic pipe-lines are complete, the valves will be opened in the Middle Eastern fields and the pattern of the world's oil trade will gradually change. The growing import requirements of the United States will not be met directly from this new produc- tion, because the distance involved is too great—New York, for example, being nearly 8,500 miles by sea from Abadan. (This ex- plains why, under a recent agreement, the American partner in the Kuwait Oil Company is to sell its oil to British interests.) What will happen instead is that American needs will be increasingly covered from nearby Venezuela—at present the world's biggest exporter— while , Middle Easiern oil will partly replace Venezuelan oil in European markets. Tanker tonnar will thus be economised and transport costs reduced.

But if the Americans do not draw directly upon Eastern Hemi- sphere sources for .their imports, they will, nevertheless, maintain the closest interest in Middle Eastern oil ; for it is only by helping to develop production there that they will be able to divert Western Hemisphere oil to their own country. Their interest in this area is not, of course, a new thing, for the coming shortfall in their own production has long been foreseen. Soon after the first World War they began to concern themselves with developments in the Middle East, though they were not rewarded until 1937, when they obtained a share in the re-formed Iraq Petroleum Company. They now have large investments in Saudi Arabia, Bahrein and Kuwait—investments which were the subject of mysterious and intriguing manoeuvres during the late war. With the conclusion of the deals announced last Christmas, Standard Oil is more deeply involved than ever in the Middle East—and the State Department- cannot afford to ignore the fact.

Nor is the British Foreign-Office any less interested than the State Department. The crucial importance of Middle Eastern oil for the British Commonwealth was, indeed, explained to the Labour dele-

gates at Margate last month by Mr. Bevin.himself, who pointed out that "our Navy, our shipping and a great deal of our motive power" are dependent upon it. After all, it is not for nothing that the British Government has a controlling interest in the Anglo-Iranian Oil Company. Fortunately, there is room in the rich oilfields of the Middle East fer both the Anglo-Saxon Powers ; and there is not the slightest reason to expect any recurrence of the "oil war" which sometimes strained Anglo-American relations in the decade following the first World War. In fact, the tendency today is all the other way. British and American interests are intimately mixed in this strategically important part of the world. While this co-operation endures, the oil of the Middle East will be freely available for all. But if Russian influence were to become predominant it would be a very different story.