Must the West Depend on Mideast Oil?
Petroleum Supply and the National Security
American policy toward the Middle East, and Western policy in general, we have been assured for years, must base itself on the central, stubborn foil of our dependence on Middle East oil. But, Oscar Gass asks: Is this so?
The United States need never, at any time we can now foresee, yield to economic or political pressure from any nation because of dependence on foreign petroleum supplies. We are not so dependent today, and need not be at any time in the 20th century. For a remoter time, we cannot now make rational provision. We shall then increasingly have other energy sources—and other problems.
Were the North American continent not so completely independent of imported oil, the United States would not today be a true world super-power. Among the other nations that pretend to world power, only the USSR has a comparable independence. When the 20th century opened, Russia was producing more than half of the world’s crude oil. Recently the Russians have announced that their 1975 goal is 8,000,000 barrels per day. It is perhaps no mere coincidence that this target can be described fairly accurately, in the year 1959, as “more than is being produced by the United States.”
In the continental United States, about 37 billion barrels of oil and natural gas liquids are now “proven.” (To “prove” reserves means, in the language of the oil industry, to establish the quantity in a field that can be raised to the surface by methods now economical.) The oil industry proves reserves as it needs them; the 37 billion of today compares with about 19 billion in 1940. We are now using somewhat less than 3 billion barrels of our reserves annually, compared with about 1½ billion in 1940.
But the proven supply is only our ready inventory. Reasoned professional judgment (as expressed recently, for example, by the president of Humble Oil) suggests that the oil fields now known and lands now under lease for oil extraction will probably add another 70 billion barrels of oil to proven supply in the United States, as these lands are worked over during the next twenty years. That makes a fairly reliable total of about 105 billion barrels. One serious student, B. C. Netschert, has recently speculated that if one reckons on fields not now known, there may be 500 billion barrels of crude oil potentially available for recovery in the United States—provision for a century and a half at the present rate of consumption (which however has doubled about every twenty years). Much depends on the technique of recovery; present forecasts are based on the premise that we will leave 70 per cent of the oil in the ground permanently and succeed in bringing only 30 per cent to the surface.
Moreover, the United States has even larger reserves of oil shales than of liquid petroleum. Known shale deposits in the western part of the United States contain more than 600 billion barrels of recoverable hydrocarbon liquids. A substantial part of this “shale oil” is recoverable now, at a cost level entirely competitive with domestic crude production. One major West Coast oil company, after extensive pilot plant work, announced that extraction of oil from shales is inhibited only by the availability of cheaper imported crude. These shales constitute reserves for the remoter future. Their existence makes it impossible that the United States should ever find itself suddenly “out of oil.”
Large increases in domestic oil production are feasible without substantially higher costs. Our total demand for petroleum is now about 9¾ million barrels daily. This is equivalent to about 2¼ gallons daily for every person in the United States. At the beginning of 1959 we were importing about one-fifth of our requirements; the imported supplies had the advantages of being cheap and of coming, for the most part, from friendly, reliable countries. But these imports were merely a convenience. The Mandatory Import Program proclaimed on March 10, 1959 will have the effect of reducing imports to about 15 per cent of total requirements. That imposes no hardship. The United States was producing about 8,000,000 barrels daily of crude petroleum and natural gas liquids at the beginning of 1959. There was idle crude capacity of 2,000,000 to 3,000,000 barrels per day. It would certainly be cheaper, per barrel, to produce 9,000,000 barrels domestically, and it might be even cheaper, on the average, to produce 10,000,000 barrels—if we could use that much. Our average domestic crude production cost would fall with such expansion of output, though the additional crude would still cost more than equivalent imports.
In making longer-run comparisons of costs, we must first eliminate the influence of general increases in the price level. Then we can recognize a real factor of increasing crude oil costs in deeper drilling, but also offsetting factors in improved finding techniques, better equipment, better materials, and greater knowledge of reservoir recovery. On balance, the real cost trend is certainly not sharply upward. In real terms, we can count, over the years, on greatly increased petroleum supplies from domestic production, at costs comparable to those with which we are accustomed.
So far as American petroleum consumption is concerned, we need not—for reasons of quantity or cost—look to the Middle East, or to Latin America, or to any other place in the world.
The petroleum position of the major allies of the United States is, with few exceptions, the exact opposite of our own.
The Americas, without the United States, can more than take care of their own petroleum needs, as a group. They now produce over 4,000,000 barrels of crude daily and could easily achieve 6,000,000, if we made that a common goal. As a group they now have an exportable surplus of 2,000,000 barrels. Venezuela is today their one great net exporter, but other countries—notably Canada, Mexico, Brazil, and Argentina—could more than meet their own needs if their resources were developed.
On the other hand, Western Europe (not including Austria) and North Africa (apart from Egypt) together have today only a trifling crude oil production—under 250,000 barrels daily. Western Europe itself needs twelve times as much. America’s position with respect to petroleum supply therefore contrasts sharply with Western Europe’s—absolute independence in our case, absolute dependence in theirs.
Apart from Europe (and after the Americas), in all the rest of what we euphemistically call the free world, only the Middle East and the Indonesian archipelago have oil production in quantities worth mentioning—4½ million and ½ million barrels daily, respectively. Asia (outside the Communist countries), Africa, and Oceania together now consume over 1½ million barrels of oil daily—half the amount of Western Europe—but most of the countries in these three continents have no considerable oil. Countries like Japan and Australia are as dependent on imports as are the United Kingdom or Belgium. In fact, all our major allies and associates outside the Americas are primarily dependent, for petroleum supply, on the Middle East, and they are becoming more dependent with every year.
Here is the nub of the issue of national and international security in petroleum supply. For some decades certainly, we and our allies and associates will need increasing supplies of petroleum, both for general economic growth and for specific defense use. For the United States alone, imports from all Asia do not come to 5 per cent of total use. This share is trifling; we could do without it. But our allies and associates are in a very different position. Is it right that they should become so dependent on Middle East oil? From the point of view of cost, Middle East oil is extremely attractive; less than 1,000 wells there (in contrast to over 600,000 in the United States) have served to “prove” reserves five times as great as those in the United States. But can we afford to make immediate cheapness the determining consideration? Is it wise for us to stake our mutual security on success in making the Middle East a safe source of supply? If not, what must we do?
The petroleum position of the nations allied or associated with us is the weaker because they are characteristically less able than the United States to forego a substantial fraction of their petroleum consumption. They have fewer substitutes and their oil uses cut closer to the bone.
In the United States today, petroleum is indispensable only for internal combustion engines and lubricants. Gasoline, diesel fuel, jet fuel, and lubricants are the petroleum products for which we have no easy substitutes. Furnace oil, residual fuel oil, and other petroleum fractions are only conveniences which we could do without, if petroleum became really scarce. The petro-chemical industry could use natural gas and coal derivatives, though sometimes with a decided cost disadvantage. So far as furnace oil is concerned, natural gas is cleaner and easier to handle, and is increasingly displacing oil in any case. So far as residual fuel oil is concerned, we have enough coal to displace it entirely and at a cost differential that is minor, in the perspective of any national necessity. The total elimination of petroleum, as a fuel, from power generation need not raise our national electricity bill by one per cent. But these substitutions, which are feasible for the United States in a long period adjustment, are not possible for our principal allies.
During the past dozen years, the United States energy position has been relieved by gigantic expansion in natural gas output to a level supplying about as much energy as coal does. (There is more energy in our “proven” reserves of natural gas than in our “proven” oil.) We now move gas across the continent in the world’s largest pipelines, and we shall soon move it across the waters in refrigerated ships. This natural gas expansion has been supplemented by progress in mechanizing coal mining, which opens up a vista of decades of expansion in coal supplies for power production at relatively constant real costs. American electricity will be increasingly based on coal until nuclear power becomes important.
Nothing comparable has happened—or is to be anticipated—in Western Europe. Europe finds it necessary to import some coal, to import materials for nuclear fuels, and—most important for the next decades—to import steadily increasing volumes of petroleum. Whatever strikes at this petroleum flow, strikes at the standard of living of the Western European peoples and at the stability of their public life. This was the deeper significance of the Suez conflict.
For the next decades, Western European economic growth will depend on the ability to import increasing volumes of fuel at costs that do not absorb the gain from advancing industrial productivity. In 1955 about 20 per cent of Western European energy supply was derived from imported fuels. It was then authoritatively estimated that by 1975 the share would be in the neighborhood of 40 per cent. Western Europe needs petroleum not only for internal combustion engines and lubricants, but also for heat and power; unlike the United States, it has no economical substitutes for oil. In 1947 the region imported about ¾ million barrels of petroleum per day and in 1955 about l¾ million barrels. It was believed that the quantity of petroleum imports would rise to about 3,000,000 barrels a day in 1960 and roughly 6,000,000 barrels in 1975. As two-thirds of the known reserves of petroleum are in the Middle East, it was naturally assumed, before the Suez crisis, that most of this increased import would come from the Middle East.
Middle East oil has a special significance for European supply because of the substantial European ownership interest, supplemented by special supply arrangements, in Iran, Iraq, Kuwait, and Qatar. Much Middle East oil therefore comes to Western Europe with a smaller balance of payments burden than when oil is purchased from the United States or Canada, where Western European ownership now amounts to only about 5 per cent of total oil production. It is not therefore a simple matter, quite apart from the large quantities involved, to recommend to the Western European nations that they take steps to diminish their dependence on the Middle East and to increase their supply from Canada and the United States. Even the substitution of Latin America is not easy, though there European interests own about 30 per cent of total output.
Substitution of supply sources in the Americas would require far-reaching planning among allies and perhaps extensive financial assistance from the ally most capable of giving it. The reward of so comprehensive and expensive an effort might, however, be a cementing and stabilizing of the Western alliance in a way that comes only from prevision of fundamental problems, imagination in proposing solutions, and community in sharing their burdens.
Oil men of the 1930′s borrowed from the underworld a peculiarly apt phrase: certain oil was “hot.” Produced in defiance of state regulations, this oil sought markets anywhere, had to be sold quickly, and was frequently “dumped” without regard to price. The late 1950′s have their own “hot” oil. The temperature comes from several elements, experienced or feared; renegotiation of agreements under duress; stoppage of transit; riot and destruction of facilities; confiscation; the Communist presence. Produce and sell today; there may be no tomorrow.
Before the Suez crisis, “outsiders,” purchasing at posted prices, could not derive any particular advantage from moving Middle East crude to the Western hemisphere. With Suez came a sharp change. The great world petroleum price leaders took the occasion to raise Western hemisphere crude prices by 25 to 50 cents a barrel. (The Independent Petroleum Association of America estimates the average 1956-57 rise at 32¢.) There have been subsequent reductions, but characteristically, in the United States, about two-thirds of the Suez crisis price increase survived into March 1959. One important specification, East Texas crude, has held its high of $3.25 a barrel. At the same time, the price leaders expanded the marketing area and volume of their Middle East production so as to utilize those reserves more rapidly. Crude postings were raised only about 18¢, and sales below posted prices multiplied. Then the initial price increase was formally reversed. Now even posted prices in the Middle East are uniformly below pre-Suez values. The Abadan posting, which was $1.86 per barrel before Suez, is now $1.81; the Kuwait quotation of $1.72 is now $1.67; these are representative. Meanwhile tanker rates have fallen to unprecedented lows. The consequence of these divergent crude price policies (supplemented by the tanker situation) is that Middle East oil is cheapest everywhere. It is cheaper in Montreal and Vancouver than Canadian oil, cheaper in Houston than the oil of Texas, cheaper in Los Angeles than the oil of California. The heat is on.
It would be gambling recklessly with the national security to base international petroleum policy on a confident judgment that the tensions which produced the heat are gradually diminishing. If we focus on the Middle East countries important in world petroleum supply, excluding Turkey and Israel (who have no significant oil production and are not now important even in oil transit), we shall find no basis for optimism. Few large areas of the world are so pulverized socially, so meagerly endowed with popular skills and crafts, so far from being habituated to the technology and organization of modern enterprise. Perhaps nowhere in the world has government been more a matter of apathy, force, and fear. Abject poverty renders active citizenship unattainable for the masses. There is no traditional aristocracy, with rights of its own that the state need respect. Private enterprise is a poor thing; it grows up in the shadow of the state, assisted by the state’s financing, aided by special privileges, and subject to direction and exploitation by the state and the state’s officials. Parliamentary institutions and political democracy alike have little meaning. Military officers hold primary leadership, but in cooperation with nationalist civil officials. This pattern of government and society finds sanction in an authoritarian tradition far older than Marxism.
The great powers of the West were once the natural enemies of Middle Eastern nationalisms because they held dominion and property in the Middle East. Today, the West still has something worth taking, property, and especially oil property. Only in Turkey and Iran did the Russians arouse equal or greater enmity. Soviet Communism had nothing in the Middle East that the native nationalisms could aspire to take.
It would be unwise to comfort ourselves with the idea of a community of interest between Middle Eastern oil producing countries and world consumers. There is the usual community between buyers and sellers in having business done—but there is also the usual diversity over the benefits to be divided. The Middle Eastern countries will unquestionably continue to claim an ever larger share of the benefits from petroleum use, and in the last analysis—if there is no alternative—world consumers (rather than merely oil company profits) will have to carry the additional burden. The professed 50/50 sharing of profits is now being challenged by various 75/25 formulas, and beyond these lie proposed 90/10 formulas. The limit of this progression lies not in any notion of equity; what is at issue is the strength of the contending parties and the extent to which they need one another. The situation is made especially tense by the fact that Kuwait, Saudi Arabia, Iran, Iraq, and Bahrein are the major suppliers, but it is the United Arab Republic which controls all the major economical lines of transit to the west, both by water and land. In addition to the denial of original supply, therefore, the denial of petroleum transit becomes a method of negotiation. Under these circumstances, any petroleum agreement must be regarded as being an agreement merely “for the time” until the Middle Eastern party considers it feasible to overturn it in favor of another regarded as more beneficial.
Need world consumers then forego entirely the use of Middle East oil? Not at all. Middle East petroleum output can perhaps even safely continue to grow from the present level of 4½ million barrels daily to as much as 7 or 8 million barrels by 1970. What seems incompatible with reasonable security is to meet every increase in free world demand by expanding Middle East supply; to perpetuate the extreme dependence of Western Europe and the Western Pacific on the Middle East; to flood all markets with Middle East oil; thereby gradually to undermine the adequacy of oil industries in more secure areas; and thus to make the instability of Middle Eastern oil titles a stepping-stone to general insecurity in world petroleum supply.
The world outside the Communist bloc now produces over 17 million barrels daily of crude petroleum and natural gas liquids. Consumption is rising rapidly, and particularly so outside the United States. While United States domestic consumption may reasonably be expected to be 3 to 4 million barrels per day higher in 1970, other consumption is likely to be 5 to 6 million higher. The total increase of 8 to 10 million barrels could accommodate an increase of, say, 3 million in Middle East output and still permit the building of greater supply security.
Security of petroleum supply will not emerge, however, from any process currently under way. It may be attainable, in considerable part, if sought by the deliberate, combined action of the major associated governments. Now it is not an objective of combined policy at all.
Achievement of tolerable security in petroleum supply during the next years would require a positive program for increasing ready capacity to produce and use crude petroleum, in relatively secure countries, by an amount of perhaps 600,000 to 700,000 barrels per day in each year, cumulatively, from now until 1970. A tiny fraction of this amount may come from continental Europe, a more significant fraction from North Africa. But it would seem that the larger part of the total additional capacity essential to security must come from the Americas. When the more secure countries of the non-Communist world have a ready oil production capacity of about 20 million barrels daily, it will perhaps be a tolerable margin of insecurity to rely on the Middle East to supply 7 or 8 million.
The great obstacle to effective action consists in the fact that the Americas themselves are in no direct danger. Even in 1958 the United States did not import half a million barrels daily from all Asia. In time, the United States can safely take a larger volume. The other Americas can also utilize some Middle East supplies. The security of the Americas would not be seriously impaired by imports of even a million barrels daily from Asia today (about 8 per cent of total consumption), and the Americas might be able to utilize safely as much as 1½ million barrels daily of Asian supply by 1970.
The position of Africa, Oceania, and Asia (outside the Middle East itself) is precarious. Abstractly considered, it would be possible for this vast area to secure about one-third of its oil supplies from the Indonesian archipelago. But in fact some Indonesian output goes to the Americas, and Indonesia has its own security problem. The dependence of the area on Middle East supply remains decisive. India and some other Asian countries may not be concerned about this dependence, but the countries of the Western Pacific have every reason to be concerned. So long as this dependence persists, the security provision for Japan, Australia, the Philippines, etc. cannot be considered more than nominal. We have Quemoy and Matsu, but we do not have a petroleum industry which could meet a crisis demand in the Western Pacific.
In this connection, the United States regulation of crude petroleum imports into the West Coast requires special attention. As the West Coast has been designated an area of deficit crude supply, import restrictions there are less severe than for the rest of the United States. Crude petroleum therefore comes to the refineries in the Los Angeles area, the San Francisco area, and the Puget Sound area from the Middle East and from Indonesia. But there are ample crude reserves in western Canada which could be brought to Puget Sound, and there are ample reserves in the southern Mountain States which could flow to California. Offshore activity in California could also be expanded. What the current regulatory program does is to preserve the status of the West Coast as an Achilles heel in the national security. Together with the Caribbean, this coastal area of the United States and Canada should be the supply source to meet any crisis demand in the Western Pacific. Under present policy, it will be less and less able to meet even its own needs.
But the worst case of petroleum insecurity remains Western Europe. Europe is. now moving toward a use of 3 million barrels daily of Middle East crude, and then it will be 4 million and then 5 million. After the events of recent years, no responsible European can count on the Middle East as a secure source of oil. A security policy would require that an effort be made to reduce gradually the quotient of dependence on the Middle East to half or less. France apart, there seems today, however, nothing that can be dignified by the name of a Western European petroleum supply policy. France is seeking its own independence in North Africa. The rest of Europe passively accepts the facts of its dependence and insecurity, perhaps because, after the experience of the conversations that preceded the Suez incident, there is no belief that the United States would be willing to help.
There is always the danger of rushing enthusiastically from one insecurity to another. There may be an element of such danger in the French effort to substitute North Africa for the Middle East. The political future of Algeria is too uncertain to enable us to define the contribution of North Africa to a secure petroleum supply. There are those who would raise similar questions about some countries in the Americas, and these questions need serious attention.
First Canada. Canada’s proven reserves are about 4 billion barrels, and her known oil provinces are very large. Yet production in Canada has just now reached the level of ½ million barrels a day. Canada pays a price for being safe. Major oil companies who possess reserves elsewhere are interested in exploring and preempting supply in Canada, but not in producing. They would rather produce in more risky areas and keep Canadian reserves for the distant future. Canada is therefore deprived of a fully effective domestic petroleum industry. As a by-product of limited development in oil, there is also limited development of Canadian natural gas resources. If developed, Canadian petroleum could contribute substantially to the Central, Western, and Pacific Northwestern regions of the United States—on a price basis competitive with United States crudes. But the hot oil of the Middle East is cheaper. It preempts all import requirements in the Pacific northwest, brings Venezuelan oil cheaply to Montreal, and puts a brake on potential Canadian production. No reasonable conception of the national security can provide a sound basis for treating Canadian oil differently from oil produced in the United States, yet Canadian oil is labeled as foreign—and presumably as constituting part of the threat to American security—in the current import control program. It might, of course, be held, in a strained conception of diplomacy, that Canadian oil must be treated like any other for fear that some less reliable supplying country might take offense. This is to neglect confirmed friends for the purpose of courting uncertain favors.1
The case of the Caribbean is different, but not decisively so. The Caribbean area has proven reserves in excess of 20 billion barrels and a production of about 3½ million barrels daily. Much of this production is quite cheap. The area is not without internal problems of political stability. There are also questions of observance of contractual obligations, formal or implied. It does not, however, seem unfeasible to establish reasonable, stable relationships in petroleum development. A large expansion program would break many barriers. There must naturally be United States government participation in establishing the framework for any such program, and it would be best if governments of Western Europe and the Western Pacific also spoke in their own names. Combined development planning and constructive financial participation need not be deterred by the bogey of dollar diplomacy: enemies will always find words for name-calling. The Caribbean petroleum supply cannot fail to be considered as part of the security base of the Western alliance.
In the six months preceding the establishment of the mandatory oil import program of March 10, 1959, the condition of the oil industry in the United States improved decidedly. In production, the petroleum industry suffered less during the 1957-58 recession and recovered more rapidly than United States industry as a whole.
Domestic crude oil prices had been increased in 1957; part of the increases eroded during the 1957-58 recession and under the pressure of oil imports. But products prices and refiners’ margins were improving notably in the six months before the imposition of mandatory import controls. Profits correspondingly rose. It is not only the popular view but also the conclusion of severely objective analysis that the petroleum industry enjoys a higher profit ratio than the average. Even by the standards that prevail in the petroleum industry, the fourth quarter of 1958 was one of good profits and the first quarter of 1959 even better.
The most difficult thing to measure objectively in the oil industry is the volume of exploratory activity. President Eisenhower and his various committees found that the national security was threatened by excessive oil imports, largely because of what they interpreted to be the discouragement this gave to domestic exploration. Such discouragement would indeed be a serious matter if it existed, but in the United States in early 1959 this danger was more potential than actual. Oil companies which had curtailed their development drilling drastically (because they did not need more oil immediately) were still exploring vigorously.
Apart from the memory of the recession, the decisive factor pressing toward mandatory import controls was the two-cost position that prevailed in crude oil. We may cite the problem of an independent Texas or Louisiana coastal refiner in the six months of September 1958 to February 1959. By definition, he has no crude production and no captive marketing outlets. If he operated entirely with domestic crude, he might earn a gross refiner’s margin of 60¢ to 80¢ a barrel. But he could import equivalent crude from the Middle East or Venezuela at a price, delivered to his refinery, 50¢ to 80¢ per barrel below the domestic price. Importing crude meant practically doubling the gross profit margin. Every refiner wanted to import.
This two-cost position indicates that, in establishing mandatory import controls, President Eisenhower was dealing with a real problem. The problem may even be regarded as a typical one of dumping, and the imposition of import control was an entirely appropriate first response to it. But this first response, however appropriate, does not confront the factors that cause the dumping. To do that, in this case, requires a comprehensive and creative program of national and international expansion of secure petroleum supply, a program that should have a magnitude, geographical range, and time perspective commensurate with the duration of the sources of insecurity.
The administrators of United States mandatory oil import controls are not to be envied their job. They are allocating profits. A refiner who receives a license to import a barrel of crude receives a title to earn something like twice as great a gross profit as he would earn from utilizing a barrel of domestic origin. He can trade the product imported under license—with a profit indistinguishable from selling the license itself.2 The license therefore becomes the scarcest good. The power to bestow that license is accordingly not one to be borne lightly.
Unfortunately, we must conclude that the licensing power will need to be exercised for a long time. The international circumstances that led to the present controls will surely persist for many years. Not improbably, import controls will become a permanent feature of the United States petroleum industry. A variety of legal and political challenges may arise, however, before administration of the control system is regularized. At least one acute legal mind raised the issue of the constitutionality of Presidential allocation of petroleum import licenses even before mandatory controls were proclaimed. This issue is to be distinguished sharply from the constitutional authority of the President to reach a finding of the existence of a threat to the national security from excessive oil imports; of that authority there is no question. But there may be serious doubt of the constitutional authority of the President, under the statute employed for this proclamation, to set up a system of allocating imports among various companies. Congress provided the President no standard whatsoever for such allocation in this statute. The old “hot oil” case therefore comes immediately to mind. There constitutionality was denied because “Congress left the matter to the President without standard or rule,” and, the Court found, “the point is not one of motives, but of constitutional authority, for which the best of motives is not a substitute.” Here also it may well be found that good motives do not suffice, or Congress may act legislatively to establish standards for allocations even before the courts decide.
President Eisenhower administered a shock to the complacency of the petroleum industry when his statement proclaiming import control also prescribed price surveillance. Large sections of the petroleum industry had previously regarded mandatory controls only as a mechanism for guaranteeing profits, particularly the profits of domestic crude producers. The domestic industry hardly appreciates as yet the weight and possible consequences of the import controls mechanism. Simple-minded protectionism may find that it has bought more than it bargained for. If a profit is protected, the question of its fairness soon arises. From import controls to price controls and then to domestic allocations, is a sequence that will certainly, at worst, take years, but—once on the way—it may prove ineluctable.
While exact measurement is not possible, the Presidential control proclamation apparently restricts petroleum imports initially to a smaller share of demand than was supplied in 1956-58 but a larger share than in 1953-55. In the earlier years, imports ran 13 to 14 per cent of demand, while in the later ones they had been 16 to 18 per cent. The President’s formula works out to about 15 per cent. The exact initial figure is not important. But what is important is that no impression should be conveyed that there is now a vested right of domestic producers to a fixed share of the market. If, as we have argued, Canadian and Caribbean supplies can contribute to the national security equally with domestic ones, a pretended national security interest should not be advanced as a reason for excluding them from competition. The petroleum industry will be unwise to buy a year or two of higher profits at the expense of converting itself into the image, in the national consciousness, of a kept industry.
President Eisenhower concluded his statement explaining the establishment of mandatory import control by referring to informal diplomatic conversations with Canada and Venezuela regarding a coordinated approach to oil in the perspective of the defense of the Western hemisphere. Such conversations may be a beginning, but the perspective seems not the correct one. Looking at the Western hemisphere alone, there are things to be done in international oil policy, but not the most important things. Only when Western hemisphere oil potential is considered in relation to the world-wide requirements of all non-Communist nations does the perspective become true.
There may be reasoned grounds for restrained confidence that wider views will emerge, after some time. Institutions have their own momentum. Import controls over petroleum, however motivated in their origin, need not remain confined within the objectives of a sterile protectionism. Thoughtful administrators and legislators will be forced repeatedly, if only by conflicts of interest, to mull over again what has been done, what purpose present actions serve, and what remains to be done.
It is of the essence of a tolerable ordering of international petroleum affairs that there should be a swift and substantial reduction in the dependence of the non-Communist world upon Middle East petroleum. Reduced dependence need not wait long years for the development of alternative types of energy. It is achievable, at reasonable cost, through the expansion of petroleum output in more secure areas. But this is not an achievement that will come autonomously through the “wisdom of the market.” It requires action of deliberate intent, and that action is not yet in train.
1 Since this was written, President Eisenhower has amended the import control system, permitting free importation from Canada and Mexico by land but not by water.
2 Import rights are being exchanged today for about one dollar per barrel.