Shock Waves from the Middle East

The Middle East war set off a shock wave of alarm and uncertainty in the world's commercial centers. It spread through financial districts from London's City to Tokyo's Kabutocho, then receded as the scope and speed of Israel's triumph became manifest. Items:

> Stock market prices plunged when the fighting began, with international oil stocks leading the way down. On the New York Stock Exchange, the Dow-Jones industrial average had been drifting downward since last month. On the war's first day, the average fell by more than 20 points in particularly heavy trading after the opening, and finally closed off 15.54. But as the dimensions of the Israeli triumph became increasingly apparent, the markets recovered. Next day, the industrials went up 14.94, and it finished the week 11.58 higher than it had begun. Individual investors had originally done the selling; they and the institutions both helped bring the average back.

> The possibility of commodity shortages not only panicked European housewives, who in many places swept shelves bare of sugar and spices, but also sent excited shivers through the world's commodities markets. Futures prices went up sharply on tin, rubber, sugar, grains and potatoes.

> Money markets were active. Parisians, as they usually do in times of crisis, lined up to buy French gold Napoleons. The value of the pound sterling fell because of the expectation that Britain, deprived of Middle East oil, would have to pay some of its $1.7 billion annual oil bill in the dollar-area markets of South America and the U.S.

Word of the Week. Throughout the week, the overriding economic word was oil, as Arab states, which produce 30% of the world's supply, decided to use their wells as weapons. Iraq, Libya and Algeria cut off all oil shipments, Kuwait and Saudi Arabia embargoed shipments to the U.S. and Britain, and small Qatar refused to load the ships of either nation. The situation seemed most serious for Britain, which gets two-thirds of its oil from the Arabs and has only a 30-day stock on hand. France and Italy, neither of whom was singled out for retaliation by the Arabs, count on their cross-Mediterranean neighbors for about 80% of their oil. Faraway Japan was also affected. With no oil of their own, the Japanese get about 1,250,000 barrels of oil a day, or 60% of their needs, from the Arabs. As for the U.S., it has more than enough oil of its own, and the tankers loading last week at, for example, Houston, hardly made a dent in the city's vast storage areas.

The oil stoppage was a two-edged sword. With little else to sustain them, the Arabs rely on oil royalties and taxes for $2.5 billion in annual income. And the longer the shutdowns lasted, the more the Arabs were out of pocket. Saudi Arabia alone was estimated to be losing $2,000,000 every day the Arabian American Oil Co. was closed down.

Another problem for the Arabs is that the world is not so dependent upon their oil or upon Egypt's Suez Canal as it was during the 1956 war with Israel. Since that time, other nations have developed flourishing oil industries. Venezuelan oilmen were actually licking their lips in prospect of finally being in a position to raise prices on the country's crude. Many Arabs seemed to recognize their untenable oil situation. And thus, although Radio Damascus called on workers to "blow up oil pipelines all over the Arab world," nobody showed up to light a match.

Some oilmen insisted that the week's events could permanently alter trading patterns in the world's oil markets. More likely, since Israeli planes and tanks had ended the battle so speedily, the petroleum business, like stocks, commodities and money, would gradually return to normalcy.

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