Power to the Producers

Before departing for his ski chalet at St. Moritz last week, the Shah of Iran conferred a medal, the first-class Taj, or crown, on his finance minister Jamshid Amuzegar. The dapper, Cornell-trained Amuzegar had led the six oil-producing nations of the Persian Gulf--Iran, Iraq, Kuwait, Saudi Arabia, Abu Dhabi and Qatar--in wresting an enormous increase in payments from 23 international oil companies, 20 of them American. In fact the Shah, who had guided the negotiations over the gold telephones installed at his desk and bedside in the royal palace, had good reason to be pleased with himself as well.

Stiff Bargain. By the time last week's accord ended a month of confrontation in Teheran, the Shah had established himself as leader of the world's oil-producing nations and changed the balance of power between oil-producing and consuming countries. Under the stiff provisions of a new, five-year pact, the posted price of Persian Gulf oil--on which royalties and taxes are calculated--will rise by 35-c- per bbl. The producing companies' taxes will also go up 5%, to 55%. Every year until 1975, the companies will pay an additional 5-c- per bbl., plus 2 1/2% to compensate for anticipated worldwide inflation. All in all, the oil companies will pay $1.2 billion more in royalties and taxes this year, a 25% increase in income for the producing nations. Iran's 1971 oil revenues of $1.8 billion will amount to five times what Anglo-Iranian Oil Co. paid the country between 1910 and 1951, when the company was nationalized. Last week's agreement is expected to bring the gulf countries an extra $10 billion in oil income over the next five years.

Perhaps 80% of the huge increase will ultimately return to industrial nations in the form of investments or orders for capital and consumer goods. But the oil companies, which calculate their present profit at only 1-c- per gal. of gasoline, will raise prices soon in Europe and Japan, probably by an average 1.5-c- per gal. Last week gasoline prices in West Germany went up by 2-c- per gal. for regular and 1-c- for high-octane gasoline. Ticket prices may rise for London omnibuses, and Britain faces the uncomfortable prospect of paying $600 million more for imports by 1975 because of higher oil prices. American consumers will be little affected for now because the U.S. gets only 3% of its oil from the Middle East. But if Venezuela legislates higher taxes as it intends to do, the price of East Coast heating fuel, most of which is imported, is likely to rise.

Coming Showdown. In the Teheran agreement, the oil companies gained a pledge--perhaps fragile--from the gulf states not to raise prices again for five years. The promise is supposedly binding even if the leftist revolutionary regime in Libya, the country that started the latest round of increases last fall, wins a larger settlement in negotiations beginning this week or next. Libya's Deputy Premier, Major Abdel Salam Jalloud, has already served notice that the gulf agreement "does not even reach the minimum of our demands." Adopting a pattern that it has used successfully before, the Libyan government has also decreed that it will deal with the oil companies one by one. Negotiating along with Libya will be Algeria and two of the gulf states, Saudi Arabia and Iraq, which have not yet settled on a price for that part of their oil production that reaches the Mediterranean by pipeline. Some major oil companies avow that they will shut down their Libyan production rather than accede to leapfrog demands, lest this cause the painful Teheran pact to come unstuck.

After the Libyan showdown, the oil companies must agree on a new price with Venezuela and Indonesia before a worldwide pattern of oil prices can be reestablished. The Teheran agreement illuminates the new power over industrial countries that the world's producers of raw materials can exert if they act in unison. Having made his point with oil, the Shah of Iran last week was talking of forming similar groupings of nations that produce coffee, copper, tin, rubber and other commodities to bargain with consuming countries.

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