Still Tightening the Blockade

Throughout the cease-fire diplomacy of last week, the Arabs kept tightening their oil blockade of the West. Production cutbacks deepened; export embargoes spread. By week's end it was clear that after the shooting stops in the Middle East, the U.S., Europe and Japan will still be facing a war of oil attrition that will put severe strains on their diplomatic and economic cooperation.

In its first full week, oil's cold war went through three quick rounds of escalation:

1) The Arab countries that pledged two weeks ago to reduce oil output at least 5% a month began vying with one another to go farther than that individually. Four of the biggest producers--Saudi Arabia, Kuwait, Algeria and Qatar--decreed immediate slashes of 10%. That will produce a global shortage; before the cutbacks, world oil production had been barely 2% ahead of demand.

2) Five other countries joined Libya, Saudi Arabia and Abu Dhabi in shutting off all oil exports to the U.S. Washington officials estimated that the embargo will reduce U.S. supplies, directly and indirectly, by 1,500,000 bbl. to 2,000,000 bbl. a day, or around 10%. That is a serious threat to a nation that had good reason to fear a winter shortage of heating oil even before the war began.

3) Five countries--Kuwait, Algeria, Iraq, Abu Dhabi and Qatar--extended the export embargo to The Netherlands. The Arabs have been incensed by reports--denied by The Hague--that the Dutch government has offered alternative transit facilities for Soviet Jews emigrating to Israel, replacing the center that Austria promises to close (see following story). The Netherlands is also an important exporter to the U.S. of heating oil as well as other petroleum products refined from Arab crude. Thus the Arabs may well have hit The Netherlands in order to further squeeze the U.S.

While threatening to cut off oil to their supposed enemies, the Arabs set out to reassure their Western friends of continued supplies. Libya, the first country to stop shipments to the U.S., promised to sell extra quantities to Austria, making up for oil from Iraq that cannot be delivered because the Syrian ports through which it moves have been closed by the war. The Libyan action apparently was a reward to Austria for its promise to close the Jewish refugee center. Algeria signed a contract to send huge quantities of natural gas to Italy through a pipeline to be laid under the Mediterranean. Deliveries will not start until 1978, too late to help Italy through the current squeeze, but they should assure Italy of adequate fuel for the next 20 years after that.

This divide-and-conquer energy diplomacy is already yielding political and economic dividends for the Arabs. In Japan, a consortium of bankers said that they would go ahead with a loan of $30 million to Abu Dhabi, supposedly to build roads and hospitals. European banks had refused to make a similar loan because they feared that the money would really be used to finance the war against Israel. But the Japanese bankers, who are heavily influenced by the Tokyo government, evidently felt that they were in no position to refuse: Japan has to import nearly all its oil, 82% from the Middle East.

Cold War. The longer-run impact of the Arabs' oil siege is difficult to assess. Selective embargoes of the type that they are trying to impose are tough to enforce. The full effects of the Arab actions will not be felt for some time, since the oil-consuming countries generally have two months or more of oil supplies in reserve and another month's supply or so headed toward them aboard tankers at sea.

Much will depend on how closely the West cooperates to share its oil--and the portents are unpromising. European members of the Organization for Economic Cooperation and Development last week discussed activating a standby sharing plan drawn up during the 1956 Middle East war, but decided not to do it yet, partly out of fear of further antagonizing the Arabs. More disquieting, The Netherlands, Belgium and Luxembourg set up a licensing system for petroleum exports--even though the European Common Market Commission warned them that any restriction of exports would violate the Treaty of Rome that created the Common Market. Italy, which has the largest refining capacity in Europe, already had banned heating oil and kerosene exports to countries outside the Common Market.

The U.S. apparently can expect little aid. Canada, the biggest foreign supplier, has slapped a 40-c--per-bbl. tax on oil exported to the U.S. as a means of keeping its fuel at home. (Taking advantage of the tight supply situation, Venezuela, the nation's second largest foreign source of oil, kicked up prices 56%, and Nigeria announced that it would soon post an increase.) So the U.S. must take drastic conservation measures, and some already are beginning. With Government encouragement, three airlines--American, TWA and United--agreed to save jet fuel by canceling 82 flights daily. Round-trip flights between New York and Chicago will be reduced to 55 daily from 70; Philadelphia-to-Los Angeles round trips will be cut to three daily from six.

Much more belt tightening will be needed, and recognition of that fact last week forged a strange political alliance between Nixon Administration officials and Washington Senator Henry Jackson, a contender for the 1976 Democratic presidential nomination. They agreed to cooperate in pushing emergency fuel legislation through Congress. Jackson has introduced a bill that would authorize the President to declare a national fuel emergency if U.S. demand exceeds supply by 5% or more. The bill calls for many feasible conservation measures. Domestic wells would be required to pump oil faster than their "maximum efficient rates," a move that would risk damaging the oilfields by reducing the underground pressure. Electric utilities that could do so would have to convert from burning oil to coal--at the cost of more pollution. Highway speed limits would be lowered to 50 m.p.h.; motorists would be required to get regular engine tune-ups and would be encouraged to form car pools.

The Administration disagrees with some specifics of the Jackson bill, but agrees that some such comprehensive program is needed. Indeed, though the Administration regards rationing of oil products as a last resort, it may announce this week that it is getting the machinery ready just in case. At week's end, President Nixon said that the U.S. already has "contingency plans" for rationing.

The end of the shooting war probably will only intensify the oil cold war. The Arabs are counting on petroleum pressure as their main political weapon in negotiations to force Israel out of territory conquered in 1967. The West will have to demonstrate considerable resolve and ingenuity in crafting oil-sharing strategies and conservation measures if it is to fight back effectively.

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