Growing Oil Consumption Puts U.S. in Quandry

N.Y. Times News Service

Anyone tempted to think it will be easy to keep restricting Iran's and Iraq's access to the world's oil markets might consider these facts:

The Middle East holds two-thirds of the world's oil reserves. At the rate the world is increasing its use of oil, it will need 10 million more barrels a day by the year 2000. Some analysts and economists say the Middle East is the only place where that extra 10 million barrels a day can be brought into production fast enough.

And if American companies don't help develop it, others are certain to try.

That means the United States is in for a difficult balancing act in what little remains of the 20th century: it will be more reliant than ever on Middle Eastern oil as it tries to pick and choose which of the region's countries should be allowed to produce and sell it.

So the outlook seems to be for a gradual rise in prices and a lot of political arguments about the impact of oil deals. That is the real meaning of what happened this month when Conoco backed off from its deal to help Iran develop a new oil field.

Past administrations, of course, have grappled with similar quandaries as they sought to balance support for Israel with a need to keep relations open with Arab oil suppliers. Twenty years ago, though, there was a difference: a much more unified Arab world could threaten to withhold its products from American gasoline pumps.

Now, in the aftermath of the Persian Gulf war, with Arab unity shattered and with oil prices long depressed, a new oil embargo is no longer a threat. What appears more likely is a creeping price rise as oil companies and Arab lands jockey for the financial resources with which to develop new oil fields.

"There is no other place but the Middle East to add significant production," said John H. Lichtblau, the chairman of the Petroleum Industry Research Foundation, a consulting group.

The tens of billions of dollars that will be needed to bring proven fields into production can no longer be generated by the Middle East producers themselves. All of them, including Saudi Arabia, have been traumatized by the 1980s collapse of oil prices followed by the staggering cost of the gulf war itself, and they need what revenue remains to meet their own drives to modernize and satisfy social needs at home.

How else could higher demand be met? Newly discovered fields in Colombia offer one hope, and Russia another.

Western oil companies have shown particular interest in Russia's huge reserves, but efforts to make deals that will bring them into production have become mired in political infighting, even as Russian exports from existing fields decline.

So while Western oil companies are in Russia for the long haul, it is uncertain when that country's exports will begin to recover.

Meanwhile, even though oil companies have shown a surprising ability to squeeze more oil out of maturing fields (the North Sea is an example), American domestic production has been declining, as the output from fields in Alaska's North Slope declines and many other fields mature.

Despite some new investment and exploration, particularly in the Gulf of Mexico, there is little hope the decline can be reversed.

That leaves the Middle East. Eventually, some analysts believe, the major American oil companies will have to be allowed to help countries that have been branded sponsors of terrorism, such as Iran, Iraq and Libya, bring more fields into production.

The alternative, they argue, would be tighter supplies and significantly higher prices _ and the political vulnerability such conditions bring. The industrial world still needs a steady flow of cheap oil for its economic well-being, not to mention indulgences like sport utility vehicles that deliver about 16 miles to the gallon.

In fact, the dependency of the United States on oil imports has been growing. Last year it averaged about 8.9 million barrels a day or 45 percent, compared with about 30 percent in 1984.

Even at moderate oil prices the United States spent about $45 billion last year to pay for imported oil, making it a major contributor to the trade deficit.

There is some breathing room. Iraq, which can produce 4 million barrels a day, could put off a squeeze if the international community finds its behavior acceptable enough to re-admit it to the world market.

Saudi Arabia also has spare capacity, which it is now holding back to support the drive by the Organization of Petroleum Exporting Countries to raise oil prices by limiting production.

None of this means that spiking the Conoco deal with Iran will have any immediate impact on oil supplies or prices, or, for that matter, on Iran's ability to expand production.

Iran has already turned to a French oil company to pick up the deal that Conoco was shut out of, and U.S. companies still have the option of turning increasingly to Saudi Arabia and Kuwait for supplies.

In other words, while oil prices remain low and supplies plentiful, each side can pursue its politics with little economic risk. Even a bill being sought by Sen. Alphonse D'Amato, R-N.Y., that would prevent U.S. companies from buying oil from Iran, would initially change little.

Those companies can now buy Iranian oil but cannot sell it directly in the United States. It seems reasonable to assume, therefore, that Iran would find other companies to sell that oil to the foreigners.

By the end of the decade, however, the picture could be different. If the predicted squeeze develops, there will probably be more pressure to find a way to allow deals like the one Conoco wanted.

As prices rise, the need to find some accommodation may seem more compelling.

Copyright 1995
Provided by ProQuest Information and Learning Company. All rights Reserved.