ENERGY: The Arabs' New Oil Squeeze: Dimouts, Slowdowns, Chills

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Unlikely Catalyst. In short, the tables have turned in the oil trade—and in oil diplomacy. Largely because Feisal has withheld his oil, the sellers now completely dominate the buyers. In many ways, Feisal is an unlikely catalyst for such sweeping change. He is basically the monarch of a 19th century state that is edging cautiously into modern times (see box page 90).

Saudi Arabia is almost the size of Texas and Alaska combined, and 98% of it is barren, reddish brown desert; there are no rivers or lakes. Summer temperatures boil up to 120° in the forenoon, and nights can be shiveringly cool. During the month-long spring gale, or shamal, the blowing sand sifts into the loose robes worn by most Saudis and mantles the cities in white powdery dust.

Nobody knows the exact population of Saudi Arabia; estimates range from 3,400,000 to 8,200,000. Skills are in short supply, and many Saudis generally consider manual labor beneath their dignity. Much of the work is done by 300,000 foreign laborers: Yemenites in the construction trades and Jordanians and Palestinians in the offices. There are some modern oases: Riyadh, the centrally located capital, and Jidda, the commercial center on the Red Sea, have expansive boulevards and plenty of low-rise apartment houses, shops and government buildings. But there are no movies and no night life.

Until this century, Saudi Arabia had little contact with the West. The land seemed so uninviting that neither Britain nor France bothered to set up spheres of influence, and practically the only foreign visitors were pilgrims to Mecca and Medina. Then, in 1933, a group of prospectors from Standard Oil of California arrived in the country hoping that they might strike oil. They brought in the first well in 1938, and later explorations confirmed that the unprepossessing kingdom of sand was virtually floating on a sea of petroleum.

Over the years Socal was joined by three other oil giants—Exxon, Texaco and Mobil—to form the Arabian American Oil Co. (Aramco). Western-owned oil companies in the Middle East were able to drive one-sided bargains with the weak, quarreling and often ignorant Arab regimes. The corporations controlled exploration, production, shipping and marketing, and paid the governments as little as they could.

This rich fabric of oil concessions began to unravel in the late '60s, when the rise of rabid Arab nationalism coincided with the increasing dependence of Japan and the West on Middle East oil. By 1970 Libya was becoming a major producer, and its low-sulfur oil was selling for $2.23 per bbl. The Libyan government asked for a moderate 10¢ per bbl. increase, but a group of Western oil companies offered only 6¢. Led by Colonel Gaddafi, the government struck back by cutting production by 25% and lifting the posted price by 30¢, to $2.53 per bbl., the largest increase in Middle Eastern history until then. Most of the oil-company chiefs agreed to stand together and resist the rise, but Armand Hammer, chairman of Occidental Petroleum, capitulated.

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