A Policy

OIL

For the first time, the U.S. has a world oil policy. The policy is still on paper only as an understanding, but it involves the U.S. directly, on a long-term basis, in the Middle East. The policy came to light at a little-publicized meeting last week, between the U.S. State Department and top executives of the U.S. companies involved in foreign oil production.

Basis for Hope. The policy sounds elementary. In brief, it assumes that the national welfare demands: 1) that the Government concern itself with insuring ample oil supplies for the U.S., 2) that the Government concern itself with the good of its corporate nationals abroad, but 3) that corporations in search of profits must bear in mind the good of foreign nations, in line with U.S. policy in search of peace. In other words, it is a proper concern of Government, at the diplomatic level, to be active in foreign oil as the impartial guardian of both foreign and domestic interests.

Until last week a robber-baron-conscious faction in the State Department had persistently acted as if any cooperation with industry smacked of treason. And U.S. international oil companies have similarly regarded any Government interference in their policies as an affront--at least until they got into trouble abroad. Now there is at least basis for hope that the two can work together.

Prime evidence of the new Government-business accord came in a full-dress press release from President Harold L. Ickes of the Petroleum Reserves Corp. Taking PRC out of the mystery-story realm at last, he told the world that the U.S. Government, on military advice and with the full approval of the oil companies involved, plans to build a huge, 1,000-mile pipeline (estimated cost: $130,000,000-$165,000,000) from the Persian Gulf to the Mediterranean.

Reservoir for the Future. Harold Ickes' new project was significantly located. The Middle East has long been regarded by farseeing international oilmen as an almost unlimited insurance policy against the day when the world's other great oil reservoir--the U.S.-Caribbean area--can no longer supply the world (TIME, Dec. 27). War II has brought that day closer. For the Western Hemisphere is supplying 88% of the United Nations' oil and gas needs. New reserves, particularly in the U.S., are not being opened up as fast as known reserves are being drained.

Thus U.S. oilmen and their Government are looking toward the day when the Western Hemisphere will be little more than self-sufficient in oil, if that, and the rest of the world will in the main be supplied from the Middle East. Drilling in that region is so easy that crude costs only one-third to one-half what it does in the U.S. More, this reversal of the oil flow is also geographically feasible: Melbourne is almost equidistant from California and Arabia; the Mediterranean outlets of the Middle East are no farther from the eastern seaboard of the U.S. than the Gulf Coast is from Europe.

But up to now two factors, besides the oil riches of the West, have kept Middle Eastern oil mostly in the ground: 1) British commercial policy, which has favored development of its own Iranian oil at the expense of the rest of the region; 2) the lack of commercially feasible transportation facilities, a logical outgrowth of that policy. Thus, while U.S. oil companies own or participate in concessions to perhaps half the oil reserves of the area, their value is still largely potential. There are four major interests in the Middle East (see map):

1) Arabian American Oil Co., the 100% U.S. prize, half-owned by Standard Oil of California, half by Texas Co. Its concession from Saudi Arabia's wily King Ibn Saud is enormous, but it has been hampered by the lack of a Mediterranean outlet. California and Texas also own Bahrein Petroleum on the little Island of Bahrein in the Persian Gulf, and last week announced expansion plans for its big Bahrein refinery.

2) Anglo-Iranian Oil Co., Ltd., all British, with a 56% Government interest that Winston Churchill himself wangled in 1914, as First Lord of the Admiralty.

3) Kuwait Oil Co., Ltd., half-owned by Gulf Oil, half by Anglo-Iranian. There is no production from this rich concession. Gulf's deal with A.I.O.C. provides that no oil can be sold in A.I.O.C.'s normal trading areas, and its Persian Gulf outlet is too far from any other markets.

4) Iraq Petroleum Co., a combine that is British-controlled (Anglo-Iranian and Shell), while the U.S. (Socony and Jersey Standard) and France each have a 23 3/4% interest. Besides Iraq, I.P.C. holds concessions on the peninsula of Qatar (pronounced "Gutter") and in the sheikdoms in the southeast border of Arabia. Northern Iraqi oil flows to the Mediterranean--if & when the British so desire--via two pipelines. But southern Iraq has never been developed, because the concession terms were deliberately made too stiff for its oil to compete pricewise with I.P.C.'s northern production.

The proposed "Ickes pipeline," plus the U.S. State Department's "good offices," will supposedly cure in one packet I.P.C.'s unbalance, Gulf's troubles in Kuwait, and Arabian American's in Arabia.

The Politics. This U.S.-British melange, in the midst of shifting, wrangling sheikdoms, kingdoms and protectorates of the Moslem Middle East (see p. 36), obviously involves high diplomacy. Two factors favor an eventual solution that will strengthen the U.S. position. First, as the U.S. learned in the school of hard Latin American knocks, and the British in Persia (where the Shah temporarily cancelled their contract in 1932), the best way to protect domestic interests abroad, short of war, is to build up the national interests and economic welfare of the foreign nations involved. Second, the British are anxious for an active ally in the Middle East.

Domestic politics may present as tough obstacles as foreign. Within the Administration, Harold Ickes is scrabbling with other powers for control of Petroleum Reserves Corp. Congress is talking darkly of throwing the whole thing overboard (TIME, Jan. 31). The prerogative-conscious State Department, which suggested PRC in the first place, then watched it get out of hand, is moving in too. The international oil companies involved have achieved a very neat compromise between their deep and antithetic desires: 1) to enlist strong Government support in the Middle East and 2) to avoid any direct Government interest in their production and refining operations. The U.S. Government will now have good reason to remain vitally interested in the area.* But the industry is violently split into "ins" & "outs" in looking forward to major oil production in the Middle East.

The Pay-Off. A good many ordinary citizens, besides special interests, suspicious outsiders and plain old-fashioned isolationists, may fear that the new U.S. policy towards foreign oil smacks dangerously of imperialism, and hope that the U.S. can remain self-sufficient forever. But Harold Ickes spoke for the U.S. last week--and mildly, for him: "It would be imprudent to gamble the future of the nation in such a speculation."

*The pipeline deal, so far only an "agreement in principle," provides that the Government will get its money back in 25 years of service charges, will also have a 50-year option on oil at a discount.

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