OIL: Unsheathing the Political Weapon

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After long muttering vaguely about using their abundant oil as a "political weapon," the newly unified Arab leaders finally unsheathed it last week. They vowed to cut the oil production on which the fuel-short West depends and to raise prices sharply. That oil squeeze could easily lead to cold homes, hospitals and schools, shuttered factories, slower travel, brownouts, consumer rationing, aggravated inflation and even worsened air pollution in the U.S., Europe and Japan.

The Arabs took three steps:

1) Ten Arab countries meeting in Kuwait decided that each month from now on they will reduce oil output at least 5% below the preceding month. The cutbacks will continue, they said, "until an Israeli withdrawal is completed, and until the restoration of the legal rights of the Palestinian people."

2) King Feisal of Saudi Arabia, the biggest Mideast producer, at first decreed a 10% cut in output. But by week's end, as the war seemed to be going against the Arabs, he announced a total ban on oil shipments to the U.S. Presently, 3.4% of the crude oil consumed daily by the U.S. comes from Saudi Arabia. Libya, Algeria and Abu Dhabi also announced embargos.

3) Six Persian Gulf oil countries lifted the posted price of crude oil (a theoretical figure on which royalties and taxes are based) by a stunning 70%, to $5.11 per bbl. It will keep Arab oil revenues rising—helping to pay for the war against Israel—even as fewer barrels are shipped out. It will also force Americans, Europeans and Japanese to pay as much as 5¢ per gal. more for gasoline, heating oil and other products.

Parts of the Arab oil strategy are still unclear. The communiqué from Kuwait, for instance, left deliberately vague the political conditions under which the 5%-a-month production cuts would be restored; it made no attempt to define "Palestinian rights." Further, the Arabs promised to slash shipments only to "unfriendly" countries. That pledge is impossible to carry out because the Arabs have little control over where oil goes once it leaves their ports.

Some Western diplomats and oilmen thought that the production cuts were about the most modest that the Arabs could have agreed on. In fact, before settling on the 5%-a-month formula, the Kuwait conference rejected proposals for a three-month total shut-off of oil exports and for an immediate 50% reduction in production.

None of that is really reassuring, though; the Arabs essentially have the West over a 42-gal. oil barrel. World oil use will more than double during the 1970s. Slaking that intense thirst requires continual swift increases in output, and there is only one place they can come from. The desert sands of the Arab nations hold at least 300 billion bbl. of easily recoverable oil, or 60% of the proven reserves in the non-Communist world. Merely by increasing production more slowly than the West desires—let alone reducing it—the Arabs could cause considerable discomfort.

The severity of the blow will vary widely from region to region:

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