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ANNEX
OIL AND DOLLARS
REPORT BY A WORKING PARTY OF OFFICIALS
Section I. Introductory
(i) The Problem
The Sterling Area is at present finding a net sum of nearly $600 million a year on account of oil. This paper examines the ways by which this dollar drain can be reduced whilst, on the one hand, maintaining a satisfactory level of consumption within the Sterling Area of what is a basic and essential raw material, and, on the other hand, arousing the least antagonism in the United States of America or in other countries who are dependent on oil supplies from British-controlled companies.*
(ii) The Trading Background
2. British and United States oil companies are the main competitors in the international oil trade, a position that arises as a matter of history from the enterprise of British and American nationals. At one time certain of these companies came to an arrangement establishing their relative positions in particular markets, but no such arrangement any longer exists. The international trade had, however, reached a certain degree of stability before the war and the various major companies had achieved relatively settled market positions. During the war these relative positions were in most areas preserved on Government initiative by the establishment of rigid pools, such as the Petroleum Board in the United Kingdom, or through more flexible arrangements which preserved the companies' identities. The majority of these arrangements have continued in one form or another into the post-war period, but are gradually being eliminated. In the United Kingdom the Petroleum Board was dissolved in June 1948, but under the terms of the inter-company agreement which set up the Petroleum Board, the companies maintained their existing share of trade for twelve months. Now the importing of oil is handled under normal import licensing procedure.
3. As a result United States companies market oil in the Sterling Area in the same way that the Shell Group and the Anglo-Iranian Oil Company (A.I.O.C.) both sell considerable quantities of oil to United States companies. Oil is, there- fore, a commodity that the Sterling Area buys from dollar sources at the same time that British companies, in effect, export-although geographically, their main production is outside the Sterling Area-for dollars as well as for other
currencies.
4. Table I shows the physical requirements of petroleum products by the Sterling Area in 1949-50 and 1953 and how far those requirements are expected to be met by United States companies, and how far by British. It also shows the disposal of sterling oil to other markets. It is expressed in terms of refined products as far as the Sterling Area is concerned, but sales of crude are included as such in the tonnages of sales to other countries.
5. For the United Kingdom requirements, the Ministry of Fuel and Power have provided estimates of consumption assuming the continuation of present restrictions except in the case of motor spirit as regards which it is assumed that by 1953 the basic ration for private motorists will have been restored to the 1947 level. For the rest of the Sterling Area, the figures are derived from British and United States oil companies' estimates and for foreign trade from British companies' estimates.
* * The British controlled companies, which are hereafter referred to as British companies Actude for balance of payments purposes the Shell/Royal Group.
6
Page PR affabilities of British companies' production are based on the
Page 397 662 implementation of their expansion schemes as presently notified to us-but see Section III. In particular, they assume that the Haifa refinery will, as seems probable, be reopened in January 1950, and that the present delay in O.E.E.C. approval to the European refinery programme will not adversely affect the date of completion of present plans.
A.
Sterling Area requirements-
United Kingdom
Rest of Sterling Area
B.
Ships' bunkers
Total
:
United States companies share in-
United Kingdom
Rest of Sterling Area
Ships' bunkers
Total
C.
British companies supplies-
TABLE I
1949-50
1953
Tons
Tons
Tons
Tons
000
000
000
000
13,915
16,906
16,032
19,081
11,586
14,124
:
41,533
50,831
4,275
5,111
...
5,846 2,646
6,984
2,848
12,767
14,943
28,766
35,888
13,584
26,995
7,579
-་
9,443
...
14,926
23,263
***
5,186
8,260
70,041
103,849
To the Sterling Area (A–B) ...
·To Dollar Areas
To Hard Currency Areas
(Switzerland, Belgium, Persia, Argentina)
To other participating countries
To the rest of the world
Total
D.
British companies availabilities--
E.
Own production
By purchase
Unallocated supplies
::
71,517 2,540
106,533 995
74,057
107,528
4,016
3,679
7. The British companies' unallocated supplies in Line E represent only marginal quantities and they will not be produced if the oil companies can find no profitable outlet for them. They include in 1949-50 relatively small quantities of aviation spirit, motor spirit, gas oil and bitumen, for which outlets would certainly be found, but nearly 3 million tons of fuel oil for which no immediate market exists. In 1953 the position is reversed. The possibility of using these to reduce our dollar deficit on oil is discussed later (Section II).
(iii) The Sterling Area Oil Balance of Payments
8. The Sterling Area dollar outgoings in oil arise from—
(a) imports of dollar oil by United States companies; (b) purchases of dollar oil by British companies to meet their trading deficit; (c) the dollar element in the cost of producing so-called" sterling" oil arising largely from purchases of specialised American equipment and from local costs in countries whose currencies are the equivalent of dollars. Against these can be set British companies' earnings of dollars and the capital contributions by United States oil firms to projects in the Sterling Area.
9. Table II compares estimates of the position in 1949-50 and 1953 on the basis of prices as at April 1949. A more detailed statement for these years and for 1948 is contained in Appendix I.
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