1967–73 : War & War & War & Oil
by Michel LEPETIT, Global Warning CEO, ASPO France member, The Shift Project Vice-President and LIED Research Fellow
This article presents 2 important confidential OECD archive documents in the context of the oil crisis of the 1970s. (1)
One of my Economic history research program objectives is to show how the 1970s oil crisis was a fundamental event in the history of mankind, strongly related with the end of the old stable monetary regime linking money to gold. Rare metal –like gold- production and extraction is a good proxy for energy availability. This 1970s oil crisis first act unfolded between 1970 and 1974. But there were preliminary signs of coming troubles even before, in 1968.
Two confidential meetings records of the Special Committee on Oil (SCO) of the OECD are presented here : (A) March 1968 and (B) July 1970.
According to my research, socioeconomic consequences of that pivotal period are huge, and more and more analysts do see the 1970s linchpin of the world socioeconomic trajectory. For instance, French election landscape was deeply transformed from that time :
I have described elsewhere in detail how the world economy has only known two ? oil-GDP regimes ? after World War II, with the 1970s oil crisis an obvious tipping point (2) ; and how this oil-GDP coupling has strong implications for the XXIst century.
A growing number of economists have changed their mind and start to understand that oil is very “special” indeed, and shows strong relationship with monetary mechanisms. For instance, Beno?t Coeuré, in a recent speech (3), explained that :
The pass-through of oil price shocks is one of the most well studied phenomena in monetary economics. Google Scholar currently shows around 28,800 academic papers containing the exact phrase “oil price shock”. Of those, some 11,600 also contain the exact phrase “monetary policy”.
The root of this 1970s OECD archive research was a single sentence in the famous Yergin’s book (4) about oil history (my emphasis) :
The disappearance of surplus capacity in the United States would have major implications, for it meant that the “security margin” upon which the Western world had depended was gone. In November 1968, the State Department had told the European governments at an OECD meeting in Paris that American production would soon reach the limits of capacity. In the event of an emergency, there would then be no security in cushion ; the United States would not be able to provide stand-by supply. The other participants at the meeting were taken by surprise. This was only one year after the 1967 embargo effort by OPEC, and the Middle East was manifestly no more secure.
I present here what I have –until now- discovered in the OECD archives (1) regarding this first energy “global warning”.
The background of the first document is the 1967 oil crisis with an embargo attempt by OPEC Arab countries -which failed- during and following the Six Days War (5th-10th June 1967). The OECD SCO met in the aftermath of this crisis, in March 1968, to assess the situation. I shall present more documents on this 1967 oil war crisis in another post.
The other document is from 1970, where the world oil supply situation under stress was clearly explained by the US experts to Europe and Japan SCO members. The background of this July 1970 SCO meeting was an escalation of tensions and price negotiations in the Middle East and North Africa which had started at the beginning of 1970.
One can find a very detailed description of this history of price of oil escalation between the OCDE oil companies and the OPEC oil suppliers countries in the annex to Mr. Mayer Schuler hearing by the US Senate in 1974 (5). All negotiating weapons and tricks were used by OPEC : threats ; retroactivity ; leapfrog ; embargo ; nationalization ; taxes …
Some excerpts of this 1974 document to show the growing pressure on the “free world” Oil companies :
(…) The point that emerges from my analysis is that we ALL failed collectively to produce a policy capable of checking the momentum of increasing demands from producer states. Some will continue to view public exposure as a monumental error, but I hope that others will share my new conviction that baring the record will prove that the “energy crisis” is frighteningly real and that although it is the Western World's own creation, it is a creation which arose out of understandable human errors, not out of a conspiracy.
(…) On May 7 [1970], Libya began a series of limitations on Occidental’s permissible production which reduced production from a peak of 800,000 BPD [barrel per day] in April to 485,000 BPD in June (…). Subsequently, Amoseas production was slashed by 81% to 275,000 BPD on June 15; Oasis was cut by 12% to 895,000 BPD on July 20; Mobil/Gelsenberg were cut 20% to 222,000 BPD on August 15 and Esso were cut about 15% to 630,000 BPD on September 5. The reduction in available Libyan supply, coupled with the Syrian closure of Tapline soon drove up the spot market prices for oil and tankers. Meanwhile, Algeria nationalized all assets of Shell and Phillips. (…)
This is when the following July 1970 OECD SCO meeting happens, which document I provide later in this post.
Following that period, Mayer Schuler writes :
(…) Conclusions to be drawn from round 3
The Libyan demands of January 3 [1971] served to confirm all the previous concerns and conclusions created by Rounds 1 and 2. It also raised several new elements: (1) For the first time oil prices and policy were being openly used as a political weapon to force the United States to adopt a pro-Arab Middle Eastern policy. (2) The momentum of OPEC demands was accelerating at a fantastic pace which would lead to a full confrontation if it could not be slowed. (3) The RCC’s [Libya Revolutionary Command Council] rejection of the 5 year posted price schedule in its own September agreement demonstrated that there was little hope for long term commitments even when freely entered into by revolutionary governments.
After the Teheran and Tripoli agreement (January 31, 1971 ; April 2, 1971), Mayer Schuler then describes how the situation evolved until the 1973 crisis :
Subsequent to the abandonment of industry and government solidarity at Teheran and Tripoli in 1971, the momentum of producing state demands has accelerated at such a rapid rate that it is no longer possible to separate one round from the next. The events are, therefore, presented in strict chronological sequence. Although it is more difficult to follow a single subject of negotiation, the chronological presentation provides a vivid example of accelerating pace. It is clear to me from this presentation, that the momentum was moving unchecked long before the October War [1973].
For the author of these lines, clearly, Alea jacta est in 1970 and at the beginning of 1971.
To come back to monetary policy considerations, Mayer Schuler writes about July 1971, a few weeks before the “Nixon’s shocks” against the Bretton Woods Agreements (August 15th, 1971) :
JULY 1971
The idea of producing state take-over of part of the property and assets of producing companies had been mooted for some time as an OPEC “recommendation” for the appropriate time in the future. Having seen the capitulation of companies and governments at Teheran and Tripoli, OPEC correctly judged that the time was right for “participation”.
(COMMENT: This word was coined in order to characterize it as a “moderate” response to the “radical” demand for “nationalization”; however, both are “confiscation” to a greater or lesser degree. Emotive words aside, the question was whether the companies should give up part of the rights and assets which they held under valid agreements for compensation which would have been grossly inadequate in the market place.)
OPEC met in Vienna during July to discuss participation and scheduled a special session for September 22 to be preceded by a meeting on the 19th of Iran, Iraq, Saudi Arabia and Kuwait to decide on policy. A collective approach was reportedly agreed because of the companies’ earlier desire as expressed in the Message to OPEC; however, Venezuela, Nigeria, Algeria, Indonesia and Libya were not included and Iran subsequently withdrew. The OPEC Resolution 135 which was adopted in July, was published on August 13, 1971 and called for immediate “implementation of” rights to participate.
Conclusions
The 1968 archive and 1970 archive demonstrate that from the point of view of the United States, even though there had been an overoptimistic vision until 1967 regarding US oil production capacity, more and more experts and decision makers were understanding that, given the worldwide thirst for oil, the situation would become unbearable. As one can see easily, US production forecast in the July 1970 SCO Meeting were still overoptimistic (“With a continuation of last year’s performance, unused capacity would be completely obliterated by the end of 1973 (…)”) : the US oil production was going to peak much sooner than announced, in November 1970. But the trends of the market and the economic impacts of this oil supply constraint were starting to be understood.
I shall show in another post how the OPEC oil suppliers constraint – obvious in these two documents- has concealed the simultaneous global oil resource supply constraint : the post WWII world Oil-GDP trajectory was globally unsustainable (2).
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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
CONFIDENTIAL
Paris, 11th March, 1968
CE/M(68)5(Prov.) Annex
Or. Eng.
EXECUTIVE COMMITTEE
Summary record of the 170th Meeting
held at the Chateau de la Muette, Paris,
on Friday, 1st March, 1968, at 10.30 a.m.
ANNEX
43. OIL STOCKS AND SUPPLIES
(a) Reports by the International Industry Advisory Body on Oil supplies to OECD Europe during the first quarter of 1968 CES/68.12
(b) Report by the Special Committee for Oil on the OECD European Member countries’ oil stocks situation CES/68.13
[For reference : Report by the Special Committee for Oil on the Oil Stocks Situation of European Member countries of 25th May, 1967 : CES/67.29.]
Mr. SCHMIDT-LUDERS pointed out that the Report transmitted under CES/68.12 was the IIAB’s third report. It presented the situation as it existed at the end of 1967 and reviewed the outlook for the winter as a whole.
As he had pointed out earlier, the IIAB consisted of the 16 major oil companies of the OECD area, with the exception of Japan who had not immediately been affected by the oil crisis since all her oil came from Iran which had not been blocked. The Advisory Body’s findings were fully in line with the thinking of the Government experts in the Oil Committee. While the supply position was deemed to be well in hand, there was a need to be prudent.
It was no longer necessary to turn to North America for additional supplies. By the beginning of this year, European stocks had been replenished by 10 million tons (or by 12 per cent) more than in 1967. However, consumption had also increased, so that whereas stocks were sufficient for 77 days in 1967 they would today be sufficient for 78 days. In other words, the situation was practically the same as in 1967 thanks to the effective measures taken by Governments and private industry.
Freight rates were still above the pre-June 1967 level, but transport capacity was physically adequate. However, there was not enough of a margin of laid-up or second-class tankers to help bring freight rates down. Tanker capacity was being used to the utmost.
If the winter had been a hard one, stocks would still have been sufficient. A hard winter in Europe would only have required an overall increase of about 5 per cent, although individual countries like Sweden, of course, would have been hit much harder than others.
Although the Committee believed that further reports by the IIAB were not required, the Special Committee for Oil agreed with the Advisory Body that it would be prudent for it to continue to exist on a standby basis, just as its American equivalent was doing. He recalled the legal difficulties that had had to be overcome because of U.S. anti-trust laws. The problem had taken some time to solve and relevant basic texts had had to be carefully worded. They would continue to be effective so that there would be no legal obstacle to taking immediate action in case of need.
The conclusions of the Special Committee and of the Advisory Body as set out in CES/68.12 were based on the following main assumptions:
- Firstly, that the Suez Canal would remain closed ;
- Secondly, that all pipelines were functioning, particularly the important Trans-Arabian pipeline which started in the Gulf of Persia, transversed Saudi Arabia and ended at the city of Sidon in Lebanon ;
- Thirdly, that with the exception of Nigeria, every oil-producing country in the Middle East and Africa was both producing and shipping on a non-discriminatory basis. The marked discrimination at the beginning of the oil crisis no longer existed although some countries had not revoked it formally.
The conclusions of the Report on the Stocks Situation [CES/68.13] were given in a graphic way. They indicated that a return to normal conditions had not yet been achieved. It was for this reason that the Advisory Body considered it judicious to remain in existence on a standby basis.
An interesting conclusion that could be drawn from the Report was that the overwhelming importance of the Suez Canal, at least for oil, had been replaced by the increased importance of the pipelines. The blocking of the pipelines from Iraq to the Mediterranean, or of the Trans-Arabian pipeline, could cause a new crisis.
A second conclusion that could be drawn was that Europe still depended heavily on Middle East oil. North American and Venezuelan oil had helped, but the Middle East was still important for reasons of cost and greater production. The average production of an American oil well per day was 14 barrels ; in the Middle East, it was 7,000 barrels. Recently, in Libya, some wells could produce 75,000 barrels daily.
Finally, it was satisfactory to see that the 0rganisation had proved its efficacity and that action had been quicker in 1967 than in 1956.
The Delegate for the United Kingdom said that the Organisation’s experience seemed to indicate that there should be a reasonable stock level across the OECD and not merely a high level in one or two countries. High stocks were very useful for an individual country ; they gave it a sense of security. But it would be a false sense of security unless stocks were high in general. Europe had been able to survive the last crisis because the general stock level had been high. This fact served to stress the interdependence of Member countries on such a matter as oil supply.
The Advisory Body had been extremely valuable and effective. It might be appropriate to express the Organisation’s appreciation in a special letter to the Chairman, even though he was being asked to stand by, for all the time and energy he had given.
As proposed by the Chairman,
THE COMMITTEE
(43) agreed to transmit the Report by the Special Committee for Oil on the Third IIAB Report attached thereto on Oil Supplies to OECD Europe in the 1st Quarter 1968 [CES/68.12] and on the OECD European Member countries’ Oil Stocks Situation [CES/68.13] to the Council recommending that it :
(i) note the Reports ;
(ii) agree to maintain the International Industry Advisory Body on a standby basis ;
(iii) request the Secretary-General to write to the Chairman of the IIAB expressing its thanks to him and to the Advisory Body ;
(iv) possibly call the attention of the European Member countries to the paragraph 6 of CES/67.29 relating to their oil stocks.
SECRETARY CHAIRMAN
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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
CONFIDENTIAL
Paris, 2nd April, 1968
CE/M(68)5 (Final) Annex
(…)
NOTICE OF CONFIRMATION
The Executive Committee, at its 172nd Meeting on 28th March, 1968, APPROVED the Minutes of its 170th Meeting, with the following amendments :
(…)
Page 3 : the first paragraph should now read :
“A second conclusion that could be drawn was that Europe still depended heavily on Middle East oil. North American and Venezuelan oil had helped, but the Middle East was still important for reasons of cost and greater production. (As a point of illustration : the average production of an American oil well per day was 14 barrels ; in the Middle East, it was 7,000 barrels. Recently, in Libya, one well produced 75,000 barrels daily.)”
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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Oil Section
DIE/E/PE/70.122
RESTRICTED
Paris, 8th September 1970
REMARKS BY DR. WILSON M. LAIRD
DIRECTOR - OFFICE OF OIL AND GAS
UNITED STATES OF THE INTERIOR
(Note by the Secretariat)
The attached remarks made by Dr. Wilson M. Laird, Director, Office of Oil and Gas, United States Department of the Interior, at the end of July 1970, are circulated to the Members of the Special Committee for Oil, for information.
REMARKS BY DR. WILSON M. LAIRD
DIRECTOR - OFFICE OF OIL AND GAS
Events in the Middle East and North African oil producing nations require our consideration on three major points :
1. Commercial confrontation in Libya and Iraq, which could lead to nationalization and eventual “freeze out” of American oil interests in these areas.
2. Political disturbance arising out of the Arab-Israeli conflict, which could lead to a denial of oil to Western powers and to Japan with devastating effects on their economies.
3. A combination of these forces which could seriously affect the national security of the United States and other Free World nations.
In order to realize just how serious these current oil problems are, one has but to look at only a few pertinent statistics. Of the known oil reserves of the non-Communist world today, more than 80 per cent are contained in the North Africa/Middle East area. Nearly every country of the Free World is dependent to some degree on oil from the Middle East and North Africa. In particular, Western Europe relies on oil from these areas to the extent of 85 per cent of its total oil supply and more than half of its total energy supply ; Japan relies on the Middle East for nearly 90 per cent of its oil supply and 60 per cent of its total energy. The United States relies on Middle East/North Africa sources to meet only about three per cent of its oil needs. However, about one-fifth of the oil supply of our East Coast refineries originates in the Middle East or North Africa. These sources also supply a substantial portion of our overseas military oil needs. Oil produced in the Middle East and North Africa is currently supplying more than 45 per cent of the oil requirements of the non-Communist world.
{1967 e-Suez Map}
A look at a world map will give you an idea of how oil from the Middle East and North Africa dominates the world oil supply system. Here is a map which illustrates the international flow of oil in 1967 just prior to the 6-day Arab-Israeli conflict. The large “red” arrows on the “right” tell the story. At that time, about 3 ? million barrels a day were moving through the Suez Canal.
{1967 st-Suez Map}
Now, let’s look at the situation after the 6-day Arab-Israeli conflict. The Suez Canal was blocked, and remains so until this day, forcing a tremendous increase in movements of oil around the Cape of Good Hope to European destinations. The Middle East pipelines to the Eastern Mediterranean were also closed initially, but later reopened and were utilized to the maximum in order to save tanker tonnage. To give you an idea of the added strain on tanker tonnage capability, bear in mind that for every tanker going to Europe out of the Persian Gulf through the Suez Canal, it takes roughly two tankers to move the same volume of oil around the Cape of Good Hope to Europe. It takes a ratio of 6 to 1 to move oil from pipeline terminals at Mediterranean ports. Thus, the main oil problems in the aftermath of the 6-day war revolved around the availability and utilization of tankers. They were overcome by rescheduling, use of existing spare tanker capacity, and acceleration of new tanker construction, so that by the end of 1967 and up until recently, the international oil industry has been able to cope with the problems of the Suez Canal being out of service.
{1970 Map}
This map shows the 1970 situation as we visualized it in May of this year.
Recently, difficulties between Syria and Saudi Arabia over repairs to a rupture in the Trans-Arabian pipeline – complicated by pressures from the Syrian government for increased intransit revenues from the pipeline operating company – have resulted in the shutdown of the pipeline since May 3, forcing an additional 475,00 barrels a day of oil to move around the Cape of Good Hope to Western Europe.
Since May, developments in Libya have resulted in curtailment of production from this area by 570,000 B/D, further increasing the burden on tanker carrying capacity which right now is extremely tight.
Thus, in addition to the continued denial of the Suez Canal, over 1.0 million barrels per day of relatively “short-Haul” oil has been interrupted. This translates into additional shipping requirements of 600-650 T-2 (*) tanker equivalents if the same volume of oil is moved from the Persian Gulf around the Cape of Good Hope. Tankers not normally in oil trade which might be used, plus scheduled new tanker deliveries, cannot be expected to exceed 650 T-2’s in the next four months. Meanwhile, normal increase in demand will require at least 235 T-2 equivalents, and to this must be added the peak heating season demand. Consequently, there is every likelihood that the tanker shortage will become more critical, and the tanker rates will remain exceptionally high.
(*) A T-2 is defined as 16,765 d.w.t. at 14,5 knot speed
The results of the tanker shortage have already expressed themselves in higher delivered prices for oil around the world. Persian Gulf crude oil import “tickets” in the United States have dropped in value from $1.00 - $1.50 to practically zero. The prices of residual and distillate fuel imports delivered to the East Coast have increased sharply, and are approaching parity with domestically produced fuels. Request for substantially increased crude oil production from Texas and Louisiana in August have already been made.
Now, let us examine in more detail the three major points that were mentioned at the outset.
First, some of the implications arising out of the commercial problems in Libya. Shortly after the overthrow of the monarchy in Libya, the present government of Libya began pressing the operators of the oil concessions for sharp increases in the posted price of Libyan crude, which is the basis upon which royalties and taxes are paid to the Libyan government. The present regime takes the position that Libyan oil is underpriced in relation to crudes emanating from the Persian Gulf, and in relation to the nearby market in Europe ; and the Libyan government is thereby being deprived of revenue to which it feels it is rightfully entitled. The oil companies on the other hand maintain that the real market value of Libyan oil is determined at its destination, in direct competition with oils emanating from the Middle East. While the real price is considerably below the posted price established for Libyan oil, it is nonetheless at competitive parity with oils delivered from the Persian Gulf to the same destinations. Therefore, the increased revenue to Libya resulting from taxes and royalties paid on a higher price base means that either Libyan oil would be priced out of competition with Middle East oil, or the oil companies would have to absorb the difference.
Negotiations have been in progress for many months, but seem to be at a stalemate. Behind these negotiations, there is believed to be the threat of further nationalization and there is considerable outspoken antagonism toward American interest operating in Libya. In fact, nationalization of distribution and marketing operations in Libya is already an accomplished fact. On July 23, the Libyan government announced it would seize all “immovable” assets in the country owned by Italian citizens, including the holdings of the Italian State-owned oil company.
Reliable sources indicate that there may be additional curtailment of Libyan oil production, involving more American companies. If nationalization of production takes place, the American companies will be faced with two choices : either to get out of Libya entirely ; or to perform as service contractors for the Libyan government in marketing Libyan oil in volumes to be decided by the Libyan government, and in direct competition with oil produced by many of the same companies in the major producing areas of the Middle East.
In Iraq, there has been a running feud between the government and the American, British/Dutch, and French interests with respect to relinquishment of concession areas, and constant pressures for posted price increases ; and there is a constant fear of Iraqi nationalization of its oil resources. The only counter-balancing influence at the moment is the fact that the Iraq government has neither the market outlets for this oil nor the means to move it.
In Syria, which nationalized oil some time ago, the Syrian government has seized upon the pretext of the ruptured TAPLINE to increase its pressures on the pipeline operating company for increased intransit revenues before allowing the repair of the pipeline break. The return of this pipeline to operation would substantially lessen the pressures on tanker availability. When tanker availability is adequate, the economics of moving oil around the Cape are relatively at a standoff vis-à-vis its movement through the TAPLINE to market. It is really only when there is a shortage of tankers that the lack of this pipeline capacity to move crude oil from the Persian Gulf to the Eastern Mediterranean becomes of importance, and that is why it is of such importance right now.
These are purely commercial problems, and under normal circumstances could probably be resolved by the give and take of arm’s length bargaining between the concessionaires and the various governments. Now, however, the bargaining atmosphere is anything but normal, because of the current Arab-Israeli conflict.
It is at this point that the second major problem manifests itself. Political decisions could generate major oil problems. Libya could be one of the first to make a move – in fact, during the 1967 crisis, Libya was one of the first to deny oil to three Western powers, including the United States.
In 1967, the Libyan denial hurt, but was not significant. Today, however, Europe gets nearly 30 per cent of its oil from Libya and other North African sources. The complete denial of more than 3.6 million barrels a day of Libyan oil, on top of the continued shutdown of the Suez Canal, and the continued loss of the 475,000 barrel per day capacity of the Trans-Arabian pipeline, would have a serious impact on Western Europe. Even assuming that the lost Libyan volume could be made up from other Free World sources (a doubtful assumption), the time taken to rearrange the world tanker fleet to accommodate this disruption would force a severe drawdown on European stocks.
This brings us to the third major issue – namely the threat to the security of the United States and other Free World nations. With a sustained loss of this magnitude of more than a few weeks, the ability of the Free World nations to fuel their domestic economies would be so reduced as to jeopardize their national security. Continued denial of oil in this volume, therefore, would require some actions of major political and commercial importance.
Returning for a moment to commercial considerations, the side effects of progressive nationalization measures by producing countries directed toward forcing out American Companies would have severe repercussions upon our domestic economy. Refining, transporting, and marketing facilities developed by American companies in Western Europe and elsewhere around the world probably might even be taken over by local governments. American capital investment of billions of dollars would be wiped out, together with profit remittances and tax payments to the United States, which would add to unfavourable balances in payments and trade.
What are the alternatives ?
In the case total denial of Libyan oil, as indicated previously, expansion of production activities in other areas of the Free World probably could – given sufficient time – make up this loss. But it could not be done without serious disruption of supply to Europe during the time it would take to re-route tankers to new (and longer haul) supply sources. On the other hand, once Libyan production is nationalized, there could be pressures by the Libyan government on governments of consuming nations now receiving Libyan oil. These pressures conceivably could force some accommodation by American companies operating in these countries to accept this situation, by refining and marketing government-imposed quotas of Libyan oil. There are current indication that some governments may go this route. Non-acceptance of this situation by American companies would probably lead to their being forced out of the oil business in these countries.
If the nationalization move should spread to Iraq, the supply situation would worsen by another 1.5 million barrels per day, and would involve not only American companies, but those of Britain, the Netherlands and France. It is unlikely that the oil deficit resulting from the added denial of Iraq could be offset from remaining supply sources without resorting to rationing by the consuming countries. It is, therefore, likely that some accommodation between the Iraq governments of countries now taking Iraqi oil would be face with the same requirements I just mentioned with respect to Libyan oil.
What I have just said relates to commercial considerations arising out of actions which may be taken by producing governments, apart from the reactions likely to result if the present Arab-Israeli conflict should suddenly escalate into a large-scale shooting war. In this case, the denial of oil (15 million barrels daily) is of such a magnitude that it would be physically impossible to replace from other known sources of the Free World. This is the situation which is most alarming.
When an oil emergency takes place, it is the responsibility of the Office of Oil and Gas to do something, and more importantly, to try to anticipate the problem and be better prepared to cope with it when it takes place. In this context, on June 25, we called in the Petroleum Security Subcommittee of the Foreign Petroleum Supply Committee, an industry advisory group of technical experts of which I am the Government Chairman, to review the situation. This is authorized if and when the Department of Defense or the Office of Emergency Preparedness considers it serious enough to do so, and we had a letter from Defense asking us to do it. The review of this Subcommittee generally established the seriousness of the situation. If further deterioratio takes place, we can reactivate our Emergency Petroleum Supply Committee which has been on standby since the 1967 emergency. This is an action Committee, and through it, Government can implement action plans to try to accommodate any further serious disruption.
In closing, I would like to say a few words about U.S. capability to help out on oil shortages. We can take care of our own military needs by re-adjustments (not without problems), but spare crude oil capacity is considerably below 1967.
{Prod. & Prod. Cap. Chart}
This chart shows the history of the United States crude oil production and productive capacity from the beginning of World War II to date. The actual levels of production are shown in “black”. The longest of the “red” lines represent the capacity to produce crude oil in the United States as estimated by the Independent Petroleum Association of America (IPAA). The difference shown in “blue” represent the capacity available. The upper “dashed” lines are estimates of capacity made, in the earlier period, by the National Petroleum Council, and more recently, by the American Petroleum Institute, but on a different basis from IPAA.
The existence of producing capacity in excess of normal requirements has on several occasions been of great importance to the United States. The United States entered World War II with productive capacity more than a million barrels in excess of normal requirements. During the war, after sea lanes were reopened, the petroleum industry produced at capacity. Largely for this reason, post-war operations continued at near capacity rates through 1948.
In 1949 and 1950, lagging requirements and accelerated development of capacity restored some surplus capacity. This was quickly drawn upon during the Korean War and the concurrent nationalization of the Iranian oil industry.
In the late 1950’s and early 1960’s, spare capacity continued to increase, and the ability readily to increase domestic production of crude oil proved fortunate in meeting unusual requirements imposed on the domestic industry by the interruption of supplies from the Middle East in the Suez Crisis of 1956-1957, and again in 1967.
By the end of the 1960’s, the amount of unused capacity began to decline with rising petroleum requirements accompanied by low levels of exploration and development.
The final segment of the chart shows that the prospects for retaining significant unused capacity in the future are not encouraging. With a continuation of last year’s performance, unused capacity would be completely obliterated by the end of 1973, and even at the higher 1967-1969 rate of additions, capacity would be fully utilized only a year later.
It should be noted that none of the data shown on this chart reflects production or capacity on the Alaskan North Slope.
The chart serves to emphasize the need for Alaskan oil as well as the need for the development of new capacity in the lower 48.
{Self-Suff. Chart}
No longer is the United States self-sufficient in oil, as shown on this next chart. Net imports shown by the “black” line now exceed our spare producing capacity. Our ability to replace interrupted foreign supplies with readily available domestic capacity is being seriously eroded, as indicated by expanding deficit shown in “red”.
{Demand/Supply Chart}
Without renewed efforts to add to our productive capacity, this final chart shows that our dependence on foreign oil sources will rise to a precarious level.
According to present estimates, even if 1.0 million B/D of North Slope oil should be available by 1975, we will need to import 4.0 million B/D of oil – equivalent to 24 per cent of our demand. The greater portion of this will probably come from Western Hemisphere sources, but we will still be depending upon Eastern Hemisphere sources to supply 7 per cent of our demand. Without North Slope oil, this dependency will rise to 13 per cent.
By 1980, with 2.0 million B/D of North Slope oil assumed available, Eastern Hemisphere dependence is still 6 per cent – but would rise to 17 per cent without North Slope oil or its equivalent from increases in Western Hemisphere imports, or from increased production in the lower 48 States.
I have with me from my Office, John Ricca, Deputy Director, who is chairman of the Emergency Petroleum Supply Committee. We will help me answer any questions that you might have.
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(1) You can also read the introduction of my post (in French) on the same subject of economic history : Michel Lepetit - UN DOCUMENT HISTORIQUE ESSENTIEL SUR LA CRISE GEOPOLITIQUE, SOCIO-ECONOMIQUE ET ENERGETIQUE DES ANNEES 1970- Archives de l’OCDE - https://www.dhirubhai.net/pulse/un-document-historique-essentiel-sur-la-crise-et-des-annees-lepetit/
(2) Michel Lepetit : Méthodologie d’analyse des scenarios utilisés pour l’évaluation des risques liés au climat par une approche paradigmatique PIB-Pétrole - 1950-2040 – Chaire énergie et prospérité – 30 Juin 2018 - https://www.chair-energy-prosperity.org/publications/methodologie-danalyse-scenarios-utilises-levaluation-risques-lies-climat-approche-paradigmatique-pib-petrole/
(3) Beno?t C?uré: Monetary policy and climate change. Speech by Mr Beno?t C?uré, Member of the Executive Board of the European Central Bank, at a conference on "Scaling up Green Finance: The Role of Central Banks", organised by the Network for Greening the Financial System, the Deutsche Bundesbank and the Council on Economic Policies, Berlin, 8 November 2018.
(4) Daniel Yergin – D. The prize : The epic quest for oil, money and power, Free Press 1990 ; (1) One can also read with great profit : Matthieu Auzanneau – Oil Power and War – A dark history – Chelsea Green 2018
(5) Many thanks to the OECD Archives personnel
(6) Hearings before the subcommittee on multinational corporations of the Committee on foreign relations - United States Senate -Ninety-third Congress - Second session on multinational petroleum companies and foreign policy - August 30, 1974 – part 6 Appendix to Part 5 (on Google books). (Statement by George Henry Mayer Schuler, chief London Policy Group representative for the Bunker Hunt Oil Corporation)
Round 1 – Libya, September 1970 (page 2)
Round 2 – The rest of OPEC, December 1970 (page 5)
Round 3 – Libya, January 3, 1971 (page 7)
Round 4 – New York, January 10-14, 1971 (page 7)
Round 5 – Tripoli, January 16-24, 1971 (page 10)
Round 6 – Teheran, January 15-31, 1971 (page 11)
Round 7 – Teheran, January 31-February 15, 1971 (page 23)
Round 8 – Tripoli, January 30 – April 2, 1971 (page 35)
Epilogue (page 42)