Arab Wealth from Oil: Problems of Its Investment*

Abstract

IN October 1973, the Arab oil-producing states curtailed their oil output in order to play a serious part in the Fourth Arab-Israeli War. They cut production by some 25 per cent. and imposed a boycott on Israel's friends, directed chiefly at the United States. Almost overnight, they made all mankind aware of an energy crisis the prospect of which had worried close observers since early 1972. This crisis stems from the dependence of most of the free world on Arab oil, and the possibility that rich consumer countries through appetite, and poor ones through inability to afford high prices, could at the sudden turn of a stopcock be made to suffer oil shortages that would mar their economic growth. This general expectation is based on several hard facts. First, substitute fuels, -though they exist (notably in the form of nuclear energy and gasification of coal) cannot be developed on a large enough scale to palliate world demand for energy until the 1980s; engineering bottlenecks stand in their way. Next, an accelerated rate of finding major new oil reserves is thought by geologists to be unlikely. (Britain will be helped ou-t from the North Sea, but a current estimate of potential United Kingdom North Sea reserves is only 30 billion 1 barrels, whereas the proven reserves of the Arab states, excluding North Africa, are 300 billion barrels; bo'th figures are constantly being revised upwards.) Lastly, the United States is no longer self-sufficient, and is expected by 1980 to be importing over half its requirements, of which two-thirds will come from the Middle East. Its consumption in that year, if rising at the pace that it did before consumers were ordered to go slow in November 1973, would be about that of the whole of Western Europe in 1972. Thus the incidence of known reserves promises, certainly for ten years and perhaps for fifteen, to confront consumers with a monopoly exercised by a handful of oil-producing stattes, most though not all of them Arab. A related subject on which this article tries to throw some light is