New Chance in Iran

The British last week made their first move to reopen Iranian oil negotiations, broken off last March by Mohammed Mossadegh. To the U.S., Britain sent a note outlining terms on which it was willing to resume talks. This set off a flurry of speculation in the world's oil industry, already facing prospects of a surplus. What would happen to world oil prices if Iran's annual production of some 240 million barrels, 6% of the free world's present supply, suddenly came on the market?

Despite some oilmen's fears, there did not seem to be much cause for worry. On a purely political basis, a settlement still looked a long way off. Although the Shah's new government would like nothing better than to start cashing in on its oil again, it would be folly for any politician in rabidly nationalist Iran to seem eager to deal with the British. And even after talks start, there are bound to be long months of haggling over Britain's three preliminary conditions: 1) that the Anglo-Iranian Oil Co. receive "fair compensation" for its expropriated properties; 2) that the British balance of payments not be affected unfavorably (i.e., that Iran will not compete with Britain in supplying oil to dollar markets); 3) that Iran get no better deal than other oil-producing countries in the Middle East, an especially touchy demand since Saudi Arabia, Iraq and Kuwait are reportedly seeking higher royalties from British and U.S. companies.

Even after a settlement, most oilmen estimate that it will take months to get the Abadan refineries back in full operation, especially since there is no pressing demand for the oil. Since Mossadegh nationalized the industry, there has been a startling change in the world oil situation. To replace the Iranian oil, the Anglo-Iranian Oil Co. (TIME, March 9) and other oil companies have rapidly expanded production (see chart) and refining. In the Middle East alone, crude-oil output in Kuwait, Iraq, Saudi Arabia and Qatar reached 768 million barrels in 1952, 354 million more than in 1950, when the Iranian fields were in production. In the U.S. and Venezuela, crude-oil production was also stepped up. New refining capacity has more than made up for Abadan's loss. In the face of this sharply increased output, world demand has shown signs lately of leveling off. Last year demand went up only 5%, compared to increases of about 12% in previous years. In the U.S., stocks of oil above ground have increased sharply, and there are signs that the free world's thirst for oil has been momentarily satisfied.

Nevertheless, in case of a settlement, the major oil companies, for political reasons, would have to find a way to absorb Iran's oil, just as they found a way to make up its loss. Over a short period this might mean some cuts in present world oil production and a change in the patterns of oil marketing. But in the long run, the world would probably have no trouble using Iran's oil, since oil companies estimate that world demand for oil will continue to increase at about the current rate of 5% a year.

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