British Bobble

U.S. oilmen have been fighting mad ever since December, when the British abruptly announced their intention to cut the use of dollar oil in the sterling area (TIME, Jan. 2). Oilmen, trying to get the State Department to fight back and defend U.S. interests, became convinced that Secretary of State Dean Acheson did not really care. Triumphantly last week, they unearthed a letter to prove it.

In writing to the East African government of the clampdown on dollar oil, Britain's Colonial Secretary Arthur Creech Jones had added: "The Americans have, as expected, not gone beyond expressing regret" at the restrictions against dollar oil. That set things popping. Texas' oil-conscious Tom Connally, whose Foreign Relations Committee sits astride Britain's Marshall Plan aid, railed at this "British act of hostility to our economy." Connally bellowed for action.

Small Victory. Very much on the spot, Secretary Acheson sternly declared at his midweek press conference, that "it was and is the U.S. view that the British action [against dollar oil] was taken without adequate consultation with American companies . . ." In London, Acheson's rebuke stirred up fresh worries that the crisis might lead to a reduction in Marshall aid.

Creech Jones's blunder gave U.S. oilmen a momentary sense of triumph--at a time when they needed it badly. Even before the December announcement, British restrictions on dollar oil had cost U.S. companies 8% of their overseas sales. The embargo itself, effective next week, was intended to trim U.S. oil company sales 37%, from 13 million tons a year (97.5 million barrels) to 9,000,000. The Arabian American Oil Co., which had poured $350 million into developing its concession in Saudi Arabia and building its big modern refinery at Ras Tanura (see cut), already had been forced to shut down 23% of its production, expected to be running soon at only 50% of capacity.

As the U.S. companies began diverting overseas production to the U.S. market, where there was also a surplus, independent producers were squeezed. They began demanding everything from a presidential embargo to a tariff boost on imported oil from 10 1/2 to $1.05 a barrel. Frightened major companies cut back planned 1950 imports by as much as 15% to 35%.

Big Stakes. The crucial problem was how the U.S. could preserve its 40% share of the world oil market and how Britain could cut its dollar oil bill, the biggest single item in its dollar deficit. Standard Oil Co. (NJ.) which stood to lose $80 million worth of business a year if the British embargo became complete, had already offered Britain an alternative plan. If Britain would permit Jersey Standard to convert 50% of its sterling sales into dollars, Standard's President Eugene Holman would set up a British company, subject to British laws and taxation, to handle Standard's operations in the sterling area.

This week Britain made new proposals which, in effect, rejected Standard's plan. But at the same time Britain made its first retreat from the harsh terms of its original plan. It offered to let U.S. companies sell above the 9,000,000-ton (67.5 million barrels) quota provided they spent the additional dollars so earned in the sterling area. U.S. oilmen thought that too small a concession. To them, it still looked as if the British were trying to force the U.S. to make the world's oil market into one vast, noncompetitive cartel. If so, the only effective U.S. answer might ultimately be a global price war, waged to bring the British to terms.

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