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MIDDLE EAST OIL

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The Need

REPORT BY THE MIDDLE EAST OIL (OFFICIAL) COMMITTEE

Within the next 20 years the United Kingdom's annual fuel requirements seem likely to increase by over 100 million tons (coal equivalent). Coal production cannot be increased to meet this. The present atomic energy programme will be supplying 40 million tons a year by the end of the period and this may be increased to 60 million tons a year. The remainder must come from oil. This means that within the next 20 years our present annual consumption of 26 million tons of oil must be roughly trebled. This increase will be required if our consumption of oil rises by just under 6 per cent. a year. The increase so far this year over 1954 is 14 per cent.

2. Our sales of oil abroad are likely to increase at a rate not far behind the rise in our own requirements. At present cur oil companies play a considerable part in the international trade in oil, with corresponding advantage to our balance of payments. Very much more oil is sold in this way than is supplied to the United Kingdom, and the increase to be expected in this business will therefore require an enormous increase in production, mainly from the Middle East. Even to-day, sales abroad by British companies earn enough foreign exchange to cover the total cost of all our oil transactions, including imports.

3. Although some of the extra oil required will come from the Caribbean area, the greater part must come from the Middle East, where the major proved reserves of the world are situated and where our companies have their greatest interests. There is no alternative source, as the only other large producing area, the United States and Canada, has become a net importer. Therefore supplies of Middle East oil are essential to the economy of this country. If they were cut off or seriously interrupted irrevocable harm would be done to our economic position, and a British investment now valued at some £600 millions would be lost. Western Europe as a whole is similarly dependent on the Middle East for its oil supplies, 75 per cent. of which came from that area last year.

4. The massive growth to be expected in production will bring even more wealth than at present to the Middle East. This will make more urgent than ever the need to increase our exports to that area in order to "mop up "the sterling which it will receive. Various means of stepping up our exports to this valuable market are being actively pursued by the Board of Trade. This problem will be the subject of a separate report by the Overseas Negotiations Committee, whose recommendations will have to be taken into account in considering action on this

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The Danger

5. The Middle East oil producing countries receive payment for their oil by taxing profits on crude oil production, under the various " 50/50 " agreements. They regard this payment as no more than their due. Indeed they still question the right of the oil companies to retain large profits on oil produced from their soil, and the right of Western Governments to derive large revenues from taxing the refined products. Pressure can therefore be expected from time to time to increase their share of the profits, i.e., the price at which they allow us to have the oil, and since they have a virtual monopoly they are well placed to extract more from us. New agreements, however, have recently been made between the oil companies and most of the Middle East States, and there would be a fair prospect of these enduring were it not for the unwillingness of the Saudi Arabian Government to come to terms with the American oil company (Aramco) holding their concession. It is important to maintain the principle of equal profit-sharing. If it were breached, there is no knowing where the rapacity of the Middle East States would end, and there would be an increased cost to our balance of payments, including an increase in the net cost of our oil imports.

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