FAISAL AND OIL Driving Toward a New World Order

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American Oil Co. Oil prices were relatively low—$1.40 to $2 and the governments' take ranged from 20¢ to less than $1 a bbl.—because Middle East production costs were modest, oil was in surplus in the world, and the producers' governments were weak and disunited. Company earnings were huge. When supplies tightened and producers began to get together in the late 1960s, the governments' split of production profits rose from 50-50 to 67-33. Even before the price rises since 1973, Middle East governments profited nicely from oil; Saudi Arabia's take from 1965 to 1972 totaled $10 billion.

The OPEC countries have shrewdly turned the companies into scapegoats, blaming their high profits for the high retail prices. Indeed, in this year's first nine months, profits of the five biggest U.S. international oil companies jumped anywhere from 38% to 70%. But much of this gain was due to an unusual circumstance: OPEC's price rises triggered an automatic increase in the value of the huge stocks of oil that the companies held in tank farms and on tankers. The companies will not get those one-shot "inventory profits" in the future, unless OPEC again raises the price. As for relative earnings, the five companies' profits rose from $5.3 billion in the twelve months before the embargo and big price rises, to a steep $8.2 billion in the twelve months following; but the OPEC governments' revenues swelled from $22.7 billion in 1973 to $112 billion last year. The companies' earnings will probably decline this year because their costs are going up while oil demand is going down.

The Danger of Rising Surpluses

The companies, in fact, were among the biggest losers of 1974. The four U.S. partners in Aramco had to agree late in the year to sell their remaining 40% ownership to Faisal's government. It will pay the partners $2 billion for almost all their facilities, a price that the Saudis can meet with less than one month's oil earnings. The Saudi takeover will move Kuwait, Qatar, Oman and the United Arab Emirates to nationalize the last of the Western oil operations in those areas, probably this year. The companies will become mere agents, selling technical and marketing services to the governments for a fee.

The major companies' future is uncertain as they will face competition for markets from the oil countries' state-owned companies. Some national producers want to squeeze the private oil companies because they are viewed as competitors. Mani Said Utaiba, Petroleum Minister of the United Arab Emirates, complained: "These profits are being used by [the companies] to find alternative sources for our oil. They are investing on a huge scale in the Arctic and the North Sea. This we will not accept."

The oil crisis promises to shake the world for at least another five years or longer. It will take that long for importing countries to develop alternative energy sources and more petroleum in nations outside OPEC. Oil will be flowing in from Alaska by 1978, but the total—600,000 bbl. a day at first, 2 million bbl. a day by 1981—will not free the U.S. from the need for foreign supplies. Britain and Norway are each expected to be pumping 2 million bbl. a day from deep below the North Sea by the early 1980s. But the rest of Europe, as well as Japan and the Fourth World, will still