Chapter 30: Bidding for our life
· Embargo signals new era for world oil
· 2 elements to the embargo
o 1. Rolling production restraints that affected the entire market – the intitial cutbacks, then the additional 5% each month
o 2. Total ban on export of oil
§ Initially only imposed on the US and the Netherlands – though eventually extended to South Africa, Portugal and Rhodesia
· Loss of oil
o Available oil on October = 20.8 million b/d
o In Dec – at the most severe part of the embargo it was 15.8 mil b/d: a gross loss of 5 mil b/d of supply from the market
· This time – no spare capacity in the US
· Uncertainty of losses/immediate future
· Panic buying ensues
o Fear and uncertainty were pervasive and had a self-fulfilling effect: oil companies and consumers sought additional supplies not only for current use but also for storage against future shortages and the unknown
o Bidding propels prices even further up
· Dramatic effect on psyche of west Europe and Japan
o Reminder of post-WWII difficulties
o Extreme panic in Japan (toilet paper shortage)
· US panic contributes to increase prices and gas lines
o People begin to “top off” instead of waiting til empty
· US domestic difficulties simultaneously – Watergate
· How oil was to be allocated?
o Because of all the uncertainty with the American-Europe relations brittle and with Arabs shrewdly intent on splitting the Western allies – no machinery for allocation could be quickly established
o Results in oil companies themselves to distribute
· Oil companies – “equal suffering, equal misery”
o Organize an oil sharing system
o Logistical difficulties (p. 603-604)
o Had to satisfy Arabs in their restrictions as well as importing nations
· “every company had a web of legal and moral obligations in the many countries in which they did business; in the event of their being left to handle the shortage, the only possible policy they could pursue was equality of sacrifice” (pg. 605)
· Difficult position of shell and example – pg. 606
· The 5 major American companies ended up diverting about 1/3 of their oil – overall the principle of equal suffering applied relatively effectively
· Loss of oil growth rates
o 17% japan
o 18% US
o 16% W. Euro.
· OPEC works to decide on a price
o Iran wants $11.65/b
§ Eventually accepted
§ “new role” of shah (pg. 608)
· The embargo was a political act that took advantage of economic circumstances, and it had to be met with political action on 3 interrelated fronts: between Israel and its Arab neighbors, between US and its allies; and between industrial countries (particularly the US and the Arab oil exporters) – pg. 608
· Agreement between Israel and Egypt
o “Sadat had resorted to war…to effect political changes. In the aftermath, he had a better chance of achieving those changes in collaboration with the Americans” (pg. 608).
o “oil embargo precipitated one of the gravest splits in the West alliance since its foundation in the days after WWII” (pg. 609)
· Euro. States separate themselves from US (pg. 609)
o In mid-Nov. ’73; the Euro. Community passed a resolution supportive of the Arab position in the Arab-Israeli conflict
· Difficult position of Japan in regards to their resource vulnerability – Nov. 22 they pass a resolution endorsing the Arab position
o Mark Japans 1st major split with the US in the postwar era (pg. 610)
o Bilateral oil deals (pg. 610)
· Difficult situation in Britain
· Washington Energy Conference
o Creation of IEA and emergency sharing program for the “next” crisis
§ Purpose with harmonizing and making parallel the energy policies of the West. Euro. Countries (pg. 612)
· Sadat recognizes need to end embargo
o Effects of embargo (pg. 613)
Chapter 31: OPEC’s Imperium
· New prestige after ‘70’s
o Question of price
· Combined petro. Earnings of the oil exporters rose from $23 bil in ’72 to $140 bil in ‘77
o Excess money (pg. 616)
· ’74: OPEC had $67 billion surplus in its balance of payments on goods, services, and such “invisibles” as investment income. By ’78 the surplus had turned in to $ 2 bil deficit (pg. 617)
· Effects on developing countries (pg. 617)
· ’77 International Economic Cooperation meant to embody “North-South” dialogue (618)
· OPEC not yet regulating output
o Most of the exporters at this time were producing virtually at capacity
§ Exception: Saudi Arabia which was setting its production in order to try and achieve price objective (pg. 618)
· Rivalry between Saudi Arabia and Iran
· Auctions oil: Shah becomes disillusioned with amount of $ being made (619)
· Saudi concern with continued high prices – “feared that higher prices, and the expectation thereof, could set off a move away from oil to conservation and to other fuel sources that would change and contract that long-term market for oil” – thus diminishing the valve of their reserves (pg. 620)
· Yamani (pg. 621-624)
· US wants to lower oil prices but doesn’t want to aggressively pursue them
o “central objective was stability” (pg. 625)
· “barrels for bushels deal” – oil deal with Soviets (pg. 625)
o Disagreement over terms so it ultimately falls through (626)
· Difficult with the shah over oil prices
o Yet importance of Iran as a major security ally (pg. 627)
· Shah eventually agrees to ease price of oil
· End of concession from prior to WWI (pg. 628).
· Kwait nationalizes 1975
· J.P. Perez Alfonzo – oil nationalists and cofounder of OPEC
o Venezuela passing “law of revision”
o Concessions to expire (pg 630)
o Alfonso – “not only the oil industry but all foreign investment in Venezuela should be nationalized immediately” (pg. 631)
· Venezuela: 2 requirements for nationalization:
o 1. Maintain flow of technology and skills from outside world to keep the industry as efficient and up-to-date as possible
o 2. Access to markets (pg 631)
· Saudi Arabia concession surrendered
o Deal – S. Arabia would take over ownership of all of Aramco’s assests and rights within the country – Aramco could continue to be operater and provide services to Saudi Arabia for which it would receive 21 cents/barrel
§ It would market 80% of Saudi production (pg. 633)
o Proven reserves by ’76 = 146 bil barrels
o Interesting: Saudi’s didn’t sign the agreement until 1990 (pg 634)
· Companies became contractors
o Still linked by supply contracts to their former concessions: Saudi Arabia, Venezuela, and Kuwait – they would weaken overtime due to diversification policies of both countries and governments (pg. 634)
· By mid-70’s production sharing contracts were becoming common in many parts of the world
Chapter 32:
· Expensive and insecure oil was going to constrain, stunt or eradicate economic growth (pg. 635)
· The IEA turned out to be an instrument for coordination among the Western countries and a way to bring their energy policies into parallel
o Procedures for energy emergency sharing
o Targets for government controlled strategic reserves of oil (SPR’s) (pg. 635)
· Looking to reduce dependence on oil
o Virtually all contries resonding to price and security concerns embarked on energy policies aimed at reducing dependence on imported oil (pg 636)
o Use of alternative fuel, search for diversified sources of oil and conservation
· Japan energy supply once again vulnerable
o Actions taken:
§ Conversion of elect. Generation and industrial production from other oil to other fuel souces
§ Acceleration of nuclear power development
§ Expansion of imports of coal and liquefied natural gas
§ Diversification of oil imports away from ME and toward Pacific Rim (pg 636)
o Move from “energy intensive” to “knowledge intensive” industry (pg. 637)
· France wanting to reduce dependence on Arabs
o “must pursue a policy of diversification of energy and try to decrease the need for oil or not allow it to increase” (pg 637)
o 3 planks for French Energy policy:
§ 1. Rapid development of nuclear power
§ 2. Return to coal
§ 3. Heavy emphasis on energy conservation
o Obscene profits by US oil companies (pg 638)
§ Hearings in Congress with 7 major oil companies (pg 638-39)
o Divestiture – breaking up the integrated companies into totally separate firms for each segment of the business (pg 640)
o Why profits were up (pg 641)
o 2 significant achievements during Nixon-Ford era
§ 1. Alaskan oil pipeline
· Cost 10 bil
· TAPS – the Trans-Atlantic Pipeline
§ 2. 1975 setting of fuel efficiency standards for the auto. Industry (pg 642-3)
o Carter elected President – energy was cast as its #1 issue
o Schlesinger expresses idea that “US should promote energy conservation on the grounds of national security, foreign economic policy, and environmental improvement” (pg 644)
§ Radical notion at the time
o Carter Program (pg 645)
§ Releases program which starts intense debate
§ Receives little support
· Natural gas struggle over pricing and whether it should be controlled by the government or by the market (pg 646)
· Exploration spending up after 1st oil crisis (646-7)
o Not in developing countries
o “by 1976 Royal Dutch/Shell was concentrating 80% of its worldwide non-US production expenditures in the North Sea” (pg. 647)
· Between ’70-’76 US proven oil reserves dropped by 27% and natural gas by 24%
· Waning of OPEC – discoveries in Mexico and North Sea
o OPEC accounted for 65% of total “free world” production in 1973 and 62% in 1978
§ Incentive of price and motive of security were stimulating oil development outside OPEC (pg. 647)
· Alaskan pipeline – by ’77 it was completed
· Mexico and oil industry (pg 648-9)
o Output rises from 500,000 barrels in 1972 to 830,000 barrels in 1976, to 1.9 mil barrels in 1980 (pg. 649)
· North Sea (between Britain and Norway)
o Studying oil in North Sea: Philips Petroleum in Bartlesville, Ok (pg 650)
o Difficult conditions (pg 651)
· Oil forecasting – everyone doing it (pg 653)
o Forecasters agreed that another oil crisis was highly probable a decade or so hence, in the 2nd half of the 1980’s (pg. 653)
· “Iron Law”: there was an inevitably and inescapably close relationship between economic growth rates and the growth rates for energy and oil (pg. 653)
o Aka: income was the main determinant of energy and oil consumption (pg 653)
· Carter goes to Iran – importance of country on eve of revolution (pg 654-55)
No comments:
Post a Comment