October 1990, Page 32

Lessons of History

Continued Access to Middle East Oil is An Attainable U.S. Goal

By Andrew I. Killgore

"The world price of oil is set by the Texas Railroad Commission." -Walter Levy, petroleum consultant-1955

The ultimate limit on the cost of oil will be determined by the cost of production from Colorado oil shale or coal." -James Akins, former U.S. Ambassador to Saudi Arabia-1987

"Continued access to Middle East oil at reasonable prices" is an unglamorously succinct, but uncontestably accurate summary of American Middle East policy. It is also readily attainable if President Bush applies fundamental principles of fairness, cooperation and consistency.

Ten Cents a Barrel

When the East Texas oil fields came into production in the early 1920s, oil wells proliferated. Prices per barrel fell from $1.25 to 10 cents. The Texas legislature gave the Texas Railroad Commission authority to limit production from each well. Louisiana, Oklahoma and Kansas oil producers followed suit. Prices rebounded to $1.25, and held there for 30 years.

So petroleum consultant Walter Levy was right when he told a State Department audience in 1955 that the Texas Railroad Commission controlled world oil prices. That American cartel could not have functioned so successfully, of course, if domestic U.S. producers had not also been deeply involved in the international oil business.

Ten years after the Organization of Petroleum Exporting Countries (OPEC) was established in 1960, oil still was only $1.75 a barrel. Considering the declining value of the dollar had further declined. Prices jumped to $14 in late 1973, however, when King Faisal of Saudi Arabia supported a politically motivated oil embargo against the United States because of all-out U.S. support for Israel in its October 1973 war with Egypt and Syria. The embargo resulted in gas lines for the first time in the United States and it demonstrated to oil-producing nations their potential power. After it ended, the price of oil never dropped back to pre-1973 levels.

Two more shocks which had little to do with OPEC drove prices as high as $40 a barrel and more in the 1980s. First was the political cataclysm that impelled the Shah to flee Iran in February 1979. Second was the devastating eight-year war that followed Iraq's attack on Iran in 1980. The cumulative impact of these three developments, all centered on the Persian Gulf where 60 percent of the world's proven oil reserves lie, took prices from $30 to $40 a barrel, before they receded to the $10 to $18 range.

The fourth crisis in the Gulf, Iraq's seizure of Kuwait in August of this year, has driven prices from the mid-teens, to which they had fallen in recent years, to an average range of $25 to $30 a barrel. How high prices will go in the next months or years depends in part on the outcome of the confrontation between Iraq and the United States and its allies, and on the speed with which Saudi Arabia, Venezuela, and other producers with unused capacity move to fill the void.

More Serious Than Prices

But more serious for the U.S. than prices is whether the U.S. will continue to have reasonably secure access to Middle East (mainly Arab) oil. This has been the top American policy objective in the Middle East for the past three decades. Iraqi President Saddam Hussein's invocation of the sensitive Arab haves and have-nots theme, and his promise to withdraw from Kuwait if Syria withdraws from Lebanon and, most explosively, if Israel withdraws from southern Lebanon, Syria's Golan Heights and the occupied Palestinian territories, have struck a highly emotional chord among millions of Arabs.

Perhaps no Arab government faces any serious danger at this stage in associating itself publicly with the United States. But assuming that American pressure obliges Saddam Hussein to withdraw from Kuwait, the U.S., in the eyes of both its Arab and non-Arab allies, will also be obliged to pressure Israel to withdraw to its pre-June 1967 line. It is a standard to which the Arabs will hold Americans. If the U.S. does not apply its current zeal in barring the acquisition of territory by force in the Middle East to Arab territory acquired by Israel, Americans will have no friendly governments left to defend there.

In the long run, and even if Middle East oil did not exist, the U.S. could obtain all the oil it needs from within our own borders. Ambassador James Akins, also a distinguished oil consultant, describes as "quasi-inexhaustible" U.S. oil reserves that can be produced from Colorado oil shale and from coal. The problem is price. Present price estimates for oil from these sources run from a low $40 to a probably more realistic $65 a barrel.

If the U.S. has to pay these prices, however, while other industrial countries obtain petroleum from the Middle East at prevailing world prices, the negative consequences for American competitiveness in world markets, and on the American economy, are obvious. Even worse, imagine our dilemma if Arab oil were suddenly cut off before we were prepared to refine oil from coal or shale.

The Best Possible Outcome

The best possible outcome to the Gulf crisis would be that the U.S. resists the importunities and tricks of Israel and its loyalists in the United States to trigger an American or Israeli military strike against Iraq, or vice versa, and that Iraq eventually withdraws from Kuwait without war. Pressure from the Arab masses, nevertheless, will continue for the U.S. to force Israel out of its occupied territories in Palestine and Syria. This pressure will be felt acutely by the Arab states that have stood with us, especially Saudi Arabia and the other oil states. They will be expected to use their oil leverage just as effectively against the United States in pursuit of exactly the same principle of non-aggression which they are defending with the U.S. today.

If a serious blood-letting attends Iraq's withdrawal from Kuwait, animosity against the United States and its Arab allies for its Middle East double standard will be all the stronger among the Arab masses, both haves and have-nots. Either way, if we are to preserve our access to Middle East oil, the United States must, in its own vital interests, insist that Israel withdraw from the Arab territories it now occupies in exchange for Arab recognition and international guarantees of Israel's pre-1967 boundaries.

The U.S. is in a better position to achieve this success with Israel than the one it seeks from Iraq. To risk American lives to secure Iraqi withdrawal, and then decline to take the domestic political risks to secure Israeli withdrawal, would be the height of hypocrisy and a gross betrayal of our national interest. These are the two challenges, and opportunities, presented by today's crisis in the Gulf. Only if we meet both successfully will our own national interest, and world economic stability, be served.

Andrew I. Killgore, a former ambassador to Qatar, is publisher of the Washington Report on Middle East Affairs.