OIL: Still Tightening the Blockade

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Throughout the cease-fire diplomacy of last week, the Arabs kept tightening their oil blockade of the West. Production cutbacks deepened; export embargoes spread. By week's end it was clear that after the shooting stops in the Middle East, the U.S., Europe and Japan will still be facing a war of oil attrition that will put severe strains on their diplomatic and economic cooperation.

In its first full week, oil's cold war went through three quick rounds of escalation:

1) The Arab countries that pledged two weeks ago to reduce oil output at least 5% a month began vying with one another to go farther than that individually. Four of the biggest producers—Saudi Arabia, Kuwait, Algeria and Qatar—decreed immediate slashes of 10%. That will produce a global shortage; before the cutbacks, world oil production had been barely 2% ahead of demand.

2) Five other countries joined Libya, Saudi Arabia and Abu Dhabi in shutting off all oil exports to the U.S. Washington officials estimated that the embargo will reduce U.S. supplies, directly and indirectly, by 1,500,000 bbl. to 2,000,000 bbl. a day, or around 10%. That is a serious threat to a nation that had good reason to fear a winter shortage of heating oil even before the war began.

3) Five countries—Kuwait, Algeria, Iraq, Abu Dhabi and Qatar—extended the export embargo to The Netherlands. The Arabs have been incensed by reports—denied by The Hague—that the Dutch government has offered alternative transit facilities for Soviet Jews emigrating to Israel, replacing the center that Austria promises to close (see following story). The Netherlands is also an important exporter to the U.S. of heating oil as well as other petroleum products refined from Arab crude. Thus the Arabs may well have hit The Netherlands in order to further squeeze the U.S.

While threatening to cut off oil to their supposed enemies, the Arabs set out to reassure their Western friends of continued supplies. Libya, the first country to stop shipments to the U.S., promised to sell extra quantities to Austria, making up for oil from Iraq that cannot be delivered because the Syrian ports through which it moves have been closed by the war. The Libyan action apparently was a reward to Austria for its promise to close the Jewish refugee center. Algeria signed a contract to send huge quantities of natural gas to Italy through a pipeline to be laid under the Mediterranean. Deliveries will not start until 1978, too late to help Italy through the current squeeze, but they should assure Italy of adequate fuel for the next 20 years after that.

This divide-and-conquer energy diplomacy is already yielding political and economic dividends for the Arabs. In Japan, a consortium of bankers said that they would go ahead with a loan of $30 million to Abu Dhabi, supposedly to build roads and hospitals. European banks had refused to make a similar loan because they feared that the money would really be used to finance the war against Israel. But the Japanese bankers, who are heavily influenced by the Tokyo government, evidently felt that they were in no position to refuse: Japan has to import nearly all its oil, 82% from the Middle East.

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