Plenty--For a While

Within minutes after the news from Iraq hit the wires last week, oilmen began to face up to the problem of what to do if oil supplies from the Middle East are cut off. Though Baghdad Radio announced that the new regime will honor existing agreements with Western oil companies, and oil continued to flow (see FOREIGN NEWS), few oilmen were willing to relax. From beneath the burning deserts of the Middle East flow more than 4,000,000 bbl. of oil a day, a quarter of the free world's production. About 90% of the oil is exported, and 58% goes to Western Europe. Western oil companies have more than $3 billion in plant and equipment invested in the Middle East, 47% of it owned by U.S. firms. Now all this is seriously threatened.

In the face of last week's news, there was none of the panic that followed the Suez crisis. European oil stocks are at high surplus levels, big enough to handle any short-term emergency. France has enough oil on hand for ten weeks, Germany for twelve weeks, Great Britain for four weeks. The industry has developed greater flexibility as a result of the valuable lessons learned during the Suez incident. A tanker shortage no longer exists; some 437 vessels totaling 7,000,000 deadweight tons are laid up in Western shipyards ready to maintain a flow of oil to any beleaguered nation.

Other Wells to Draw On. If Iraqi oil were cut off, the world market would hardly know the difference. Iraq now produces 704,000 bbl. per day, only 17% of total Mid-East production and less than 5% of the world's total; the U.S. pumps more than nine times that much. Iraq provides only between 9% and 10% of Great Britain's total oil requirements, though it does ship about 34% of France's current supply. Any cutoff of its oil could easily be made up by cracking the taps a fraction wider in other Mideast fields, such as those in Kuwait and Saudi Arabia.

In the U.S., which gets only 200,000 bbl. daily from the Middle East, few oilmen would propose a dramatic increase in domestic production to offset loss of the Iraq supply. They are wary of repeating their mistake during the Suez crisis, when they amassed stores of oil so large that production had to be chopped back hard this year. Last week the Texas Railroad Commission boosted the number of producing days in August from nine to eleven, but made it clear that the hike was due to a slight rise in petroleum demand and a reduction of oil inventories rather than to the Iraq crisis.

The Eisenhower Administration is prepared to reactivate the emergency supply system that functioned so well at the time of Suez. If it wanted to do so, the U.S. could probably increase its current production of 6,475,000 bbl. a day by at least 45%. One problem would be deploying the world's tanker fleets to best advantage as rapidly as possible. For this reason, long-depressed U.S. tanker rates rose 15% to 20% last week.

The Problem: Reserves. The U.S. would not be the only Western country ready to bolster oil supplies. Venezuela, the world's second oil-producing nation, can add another 700,000 to 1,000,000 bbl. per day to its present production of 2,500,000 bbl. Canada, now running at only 50% of capacity, can add some 450,000 bbl. daily. Production can be increased in British Borneo and Sumatra, and oil firms would push the promising Alberta and Sahara fields, expand exploration everywhere from offshore California to Indonesia. Altogether, the West could count on 4,000,000 bbl. daily of extra crude--just about what the Middle East produces.

Such a switchover would take time, bring oil rationing and higher prices for much of Europe. It could also deal a blow to many European economies, particularly that of troubled France, since much of the extra oil would have to be paid for in scarce dollars instead of pounds, francs or marks now accepted for Mideast oil. The real problem would arise in a long-term loss of Middle East oil. That area holds 71% of the free world's oil reserves of 238 billion barrels, the U.S. only 14%. Eventually the West would run short of oil--unless nuclear energy could meanwhile be developed sufficiently for commercial use.

Oilmen do not expect the present crisis to come to anything like that. Even if the entire Middle East fell under Nasser's sway, they point out, Arab countries would be courting economic ruin to cut off supplies to the West. Iraq gets about 50% of its revenue from oil--$136,803,410 last year. Russia could hardly be expected to take the West's share of oil; she already has surplus production of her own, is pushing barter deals with such Latin American nations as Argentina and Brazil. For the next few years at least, cutting off the West would only serve to strengthen development of alternate sources, leave the Arab nations with plenty of oil but no markets.

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