How to Lick a Shortage

As the fighting tapered off in the Middle East last week (see FOREIGN NEWS), the oilmen of the free world faced up to a huge problem: How can the West be supplied with all the oil it needs? Some 25% of the free world's oil--and 80% of Western Europe's supply--has been coming from the oilfields of the Middle East. Last week, as a result of bombing, sabotage and plain self-defense, the flow of some 1,700,000 bbls. out of total export production of 2,600,000 bbls. a day had been cut off or disrupted, at least temporarily, and the prospects were that the flow of a few hundred thousand more barrels might be cut off.

P: Egypt's Suez Canal, which channels 1,200,000 bbls. daily to Europe from Persian Gulf fields, has been completely closed. The hulks of at least 15 vessels (including the dredges and some of the biggest salvage ships), most of them scuttled by the Egyptians, clog the waterway. The El Firdan railway bridge also has collapsed into the canal. Most optimistic estimate for clearing the canal: more than a month. Says one shipping expert: "It all depends on who is going to do the unplugging. If it's a crash program under the Americans, it might take six weeks. If it's the British and French, it might take three months. If it's the Egyptians, the job may never be done."

P: Britain's Iraq Petroleum pipeline, running from Iraq to the Mediterranean, has been blown up in so many places in Syria that its 500,000-bbl. daily flow has been completely shut off. If and when Britain resumes diplomatic relations with Syria, Britain may be able to pump oil at 40% capacity by using stations in Iraq; restoring the line to full capacity may take six months or longer.

P:Trans-Arabian Pipe Line Co. (100% U.S. owned), which pumps 350,000 bbls. daily from Arabian-American Oil Co. fields to the Mediterranean, is still operating. But last week the Saudi Arabian government ordered Aramco to suspend all shipments to Britain and France, thus depriving them of some 35,000 bbls. daily by way of the pipeline, another 110,000 bbls. daily loaded on tankers in the Persian Gulf.

Rations & Noses. All told, Western Europe has only enough oil on hand for five weeks. To conserve it, Great Britain has already started rationing oil by cutting consumer supplies 10% at the distributor level; France began rationing gasoline by restricting all pleasure travel and tourism. Other European nations are also feeling the pinch.

Some oilmen expect the oil-rich Arab nations to come to terms soon and get the oil flowing again, since they are losing heavily. Iraq is losing about $450,000 daily because it cannot move its oil, has had to cut production at its Kirkuk field drastically; Syria sacrifices $50,000 daily in pipeline earnings alone; Saudi Arabia gets an estimated 85% of its income from oil (some $290 million in 1955). On the other hand, as one old Middle East hand grumbled last week, "You can never really depend on the Arabs' not hurting themselves. They're always biting off their nose to spite their face."

Nevertheless, most oilmen are sure that Europe can get all the oil it needs from other sources. In a pinch, the U.S., which has some 285 million bbls. of oil in storage and an unused production capacity of another 2,000,000 bbls. daily, could supply all the oil Western Europe needs in the immediate future. One plan under consideration is for the U.S. to help ease the European shortage by diverting its own Middle Eastern oil imports of 350,000 bbls. daily to Europe and boosting U.S. production 400,000 bbls. daily (current daily production: 7,100,000 bbls.). Another is for oil companies to switch customers and, despite the embargo, ship oil to Britain from the oil-producing sheikdoms of Kuwait, Bahrain and Qatar, all British protectorates. Kuwait oil normally goes largely to Germany, some Aramco oil to England. If these were reversed, the embargo would hardly be noticed. One problem is that any shift in oil purchases will be expensive, will draw down Europe's dollar balances.

Around the Tip. The greatest problem confronting the West is not so much oil itself as how to get it to Europe. While Texas oilmen could easily boost production, the pipelines to the Gulf Coast and other ports are already pumping close to capacity, would require several months to boost output appreciably. A far more pressing problem is the tankers. For the short term, oilmen think that enough tankers could be rerouted to supply the extra oil by carrying it from the U.S. to Europe and bypassing the Suez Canal for Middle East oil by skirting the tip of Africa.

But any long-term Middle East crisis would bring grave problems, since the free world tanker fleet of 2,659 vessels would not be able to keep up with the soaring oil demand if the canal and pipelines stay closed. For most oilmen, the long-range solution to the Middle East oil problem is a huge fleet, possibly as many as 300 supertankers, each grossing 60,000 deadweight tons and up, which would bypass the Suez Canal. The Maritime Commission is considering a big new program to build 31 more tankers, including three mammoth 100,000-ton supertankers, four more in the 60,000-ton class. All told, the ships would cost some $390 million. Japan, Germany and Great Britain are also building new fleets of bigger tankers. Japan has recently completed a mammoth 84,730-ton tanker, the Universe Leader, for National Bulk Carriers Inc..,which is expected to carry oil from the Persian

Gulf on the shorter voyage east to California after it has completed its current run from Sumatra. In Germany, Esso's subsidiary has seven 46,000 deadweight ton tankers on order, while in Britain, Royal Dutch Shell has changed its order for nine 32,500-ton tankers into an order for three 60,000-ton ships, two of 46,000 tons, and four of 38,000 tons.

New tankers will be a long time coming, since most of the world's shipyards are already crammed with hulls and booked far into the future. Only costly U.S. yards have some reserve capacity. Thus it will be five years or more before a big new fleet of supertankers will go into operation. After they do slide down the ways (current orders total 673 vessels) and get to work at sea, the free world may well find itself largely independent of the Suez Canal.

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