Friday, Jul. 07, 1967

Burdensome Boycott

Meeting in Paris last week, the 21-nation Organization for Economic Cooperation and Development pondered proclaiming an international oil emergency. The decision was no--at least for a while. But the Arab oil boycott is causing dislocations in petroleum supply that should be felt for a long time.

The Arab boycott applies only to the U.S., Britain and, to a lesser degree, West Germany. By last week, only Libya among the major Arab producers had failed to resume shipments of at least some oil to other countries. Nonetheless, Arab oil, which supplied one-third of the world's needs until the outbreak of last month's Arab-Israeli war, was flowing at less than half its normal rate of 10,300,000 bbl. a day. And the continued shutdown of the Suez Canal forced Middle East-to-Europe oil shipments on a costly detour around the Cape of Good Hope, sorely taxing the world's tanker capacity in the process.

Rationing Coupons. Added shipping costs and dwindling petroleum supplies have already forced gasoline-price increases in Sweden, The Netherlands. West Germany, Belgium and Switzerland. Escaping price increases for the time being are France, which is getting oil from Algeria, and Italy, whose storage tanks still have a two-month supply of crude oil. Much the hardest hit is Britain, which ordinarily gets two-thirds of its oil from Arab sources. The British have started printing gasoline-rationing coupons as "a precautionary measure," last week gave oil companies the go ahead to raise petroleum prices. Meanwhile, oil companies have been chartering every available tanker, lifting freight rates for Persian Gulf-to-Britain shipments to $19 a ton, a 350% increase in less than a month.

Some nations could scarcely conceal their glee at the crisis. Venezuela, the world's third biggest oil producer after the U.S. and the Soviet Union, has increased production by 7%. Oil-rich Iran, predominantly Moslem but non-Arab, hopes to increase its oil output this year by 20%, to more than $700 million worth; last week new Iranian terminals at Kharg Island and Bandar Mashur were clogged to capacity while a dozen tankers waited offshore for loading space.

Sinai Fields. The biggest losers so far are the Arabs themselves. Kuwait, which gets more than 90% of its $695 million government budget from oil revenues, is exporting barely half its normal 2,600,000 bbl. a day. No better off is Iraq, which depends on oil for 80% of its income, but has resumed shipments beyond the Arab world only to France and Turkey. Nasser's bankrupt United Arab Republic is losing $700,000 a day in Suez Canal revenue, has not begun clearing the canal.

In economic terms, Arab leaders are obviously playing a risky game. For all their threats, most Arab states would probably be reluctant to nationalize foreign oil properties, since they lack the technical and financial resources to mar ket oil on their own. Most likely, the Arabs are merely angling for more profitable revenue concessions from the oil companies. Yet the cost of such gains may well be a permanent loss of customers forced to find alternative oil sources during the boycott. The Arab strategy is having virtually no effect on either the U.S. or Israel.*The U.S. had been getting less than 3% of its oil from Arab states. Israel, of course, never got any--that is, not until three Egyptian oilfields in the Sinai fell into Israeli hands during the war. Israel might try to resume production; just one of the fields could supply the country with the 3,000,000 tons of crude oil it uses annually.

*But U.S. oil companies came in for another kind of pressure last week when the Federal Trade Commission accused some of engaging in costly advertising when they might have been cutting prices instead. The FTC called for strict guidelines to check "recurring industrywide, anticompetitive practices."

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