Black gold
Richard Milner
A Hundred Million Dollars a Day Mtchael Field (Sidgwick and Jackson £6.95) Once upon a time, Sheik Shakbut bin Sultan al Nahayan of Abu Dhabi went down to the cellar of his palace to count his money. He was extremely upset to discover that about £50,000. worth had been chewed up by mice. So he promptly wrote to the British Political Agent in Dubai, to suggest that in future Her Majesty's Government should print Abu Dhabi's oil revenues on paper that was poisonous, non-degradable or otherwise mouse-proof. There is only one thing wrong with this odd anecdote epitomising the zany habits of old-style Arab oil sheiks. It never happened.
Many Britons see Arabs in terms of archetypes ranging from Abdul the Light-Fingered to Omar the Desert Songster. Sheik Shakbut was admittedly not very sharp and perhaps he was rather tight-fisted (his most prized possession was a chromium-plated espresso coffee machine). He also had the quaint old-fashioned idea that sudden oil wealth should not be allowed to change the traditional life-style of his small Gulf emirate. Disturbed by Shakbut's habit of putting his cash straight into the bank, the British authorities in 1966 encouraged his more progressive brother, Sheik Zaid, to take over.
To his credit, Michael Field does not fall into the trap of over-simplifying the Middle East. Saudi Arabia and Kuwait are between them currently earning about $100 millions a day from oil, which could theoretically (as the back cover mischievously points out) enable them to buy up every company on the New York Stock Exchange in fifteen years, or, British Leyland in just thirty hours. Even if the British Government had not already bagged this lame duck on wheels, however, there would be little reason to expect an Arab invasion of Longbridge. Notwithstanding xenophobic rumour, they are not about to take over the world.
At the risk of creating another stereotype, the average super-rich Arab oil sheik is rather like a Welsh hill farmer who has won a million on the pools. He builds a whacking great mansion, buys a Rolls Corniche, dishes out £20,000 apiece to members of his immediate family and sticks the rest into Building Societies. He is simply not geared to become an instant business tycoon or investment wizard, after all, although he may enjoy being a big spender. When he gets back from his world cruise with his wife and a couple of lads from the village, he may sort through the begging letters and endow a chapel or perhaps a local sports centre, But apart from Lebanese merchants and Dubai gold-smugglers, relatively few Arabs are skilled in international wheeling and dealing. (Under Sheik Rashid, Dubai has set a new record by importing the equivalent of fifty Swiss gold watches for every man, woman and child in the emirate every year for re-export to India.) And until fairly recently, even the major oil producers failed to appreciate the full potential of their underground fortune that was being siphoned off on the cheap. That they over-reacted was not altogether surprising. Leaving aside the bitter conflict over Israel, the West has had a good run since 'Anglo-Persian' started shipping in 1912.
In his painstaking analysis of events leading up to the 1973/74 world oil crisis, Michael Field makes two important points very clear. First, although the Yam Kippur War of October 1973 sparked off the astounding rise in crude oil prices, some rapid escalation was inevitable. Protests from the disparate members of the' Organisation of Petroleum Exporting Countries had been increasing since the Tehran Agreement in late 1971, which attempted to fix prices until the end of 1975 with a derisory 21/2 per cent per annum allowance for inflation. Second, the force of the 'oil weapon' brandished against Israel lay not so much in higher prices as in threats of reduced output.
Cheap Middle Eastern oil had fuelled and in effect subsidised rapid industrial expansion in Europe and Japan. Even the largely self-sufficient United States faced the prospect of increasing reliance on Gulf crude oil to sustain its growth. For the Arab producers and Iran, however, this wasting asset represented their only chance to achieve economic development. Cutbacks would slow down the industrial machine of the developed world, which had to be avoided at almost any cost. But the jump in the bench-mark "posted price" of Saudi Arabian Light from $3.01 to $11.65 in less than three months created problems for both consumers and producers.
Essentially, the key problem was that the Arabs simply did not know what to do with the extra money. Confronted by a national budget of $3,500 millions in 1972/73, Saudi Arabia's ministries found themselves unable to get through more than 60 per cent to 70 per cent of their allocations. And this was before these massive price increases, which boosted Saudi oil revenues to $29,000 millions in 1974. Even if the Arabian peninsular states manage to spend $120,000 millions on development by 1980, Field calculates, they will still be left with a staggering surplus of $200 to $240 billions — more than the entire world's reserves at the beginning of 1974.
Meanwhile the oil revenues of (non-Arab) Iran are expected to escalate from $22 billions to more than $25 billions a year; which makes the $290 millions Anglo-Iranian commodityswap deal proudly signed by (then) Industry Secretary Peter Walker in January 1974 look no more than 4, token fleabite. Moreover, Iran has consciously pursued a major industrialisation programme, later signing a $1.2 billions deal with the UK involving railway electrification and meat packing plants and a $10 ffillions series of deals with France including nuclear power stations, a Renault car works and housing construction. Saudi Arabia is richer and more hesitant.
Gradually the Saudis have found ways to circumvent their religious ban on usury, discreetly naming their central bank the Saudi Arabian Monetary Agency and generally requiring rolled-up interest to be handed over as "commission" when loans are repaid. But the pattern of their overseas investment of oil money has been a very cautious one. First, bank deposits — just like the unfortunate Sheik Shakbut. Next, longer-term loans on the international money market. Third, real estate. Last and least, stocks and shares. (Wherever they turn, they are bedevilled by the currency risks that the OPEC price increases helped to create.) Iran has set the pace in domestic industrial development and also secured the only major industrial foothold overseas with a 25 per cent stake in the Krupp steel combine in West Germany. Kuwait has pioneered strictly-apprised development loans (albeit at friendly interest rates) to less rich Arab countries, which may ultimately do more than several squadrons of Mirage jets to enhance its reputation and preserve its independence. Unfortunately, what was perhaps the Arab world's most enterprising banking-cum-industrial venture came to grief when Intra Bank crashed in 1966. Lebanon still has traces of egg. on its face.
Intra Bank was created by the late Yusif Beidas and had remained something of a
one-man bandwagon. The Arabs still have precious few diplomat-negotiatiators like Sheik Ahmed Yamani of Saudi Arabia, financiers like Ablatif al Hamad of the Kuwait Fund for Arab Economic Development and entrepreneurs like Khalil Osman of Gulf International — now expanding its investment horizons via Lonrho. Whether they will become leaders of the 'third world' in partnership with the African states remains to be seen. Michael Field's detailed, balanced and perceptive book spells out how several very different nations woke up to the fact that they were sitting on a quite unprecedented fortune, and set out to change their world. Not to mention ours., Richard Milner is an investigative journalist for the Sunday Times 'Business News'
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