The Embargo's Hazy Finish

Five months almost to the day after the Arabs unsheathed their oil weapon they decided to put it back in the scabbard--at least for a while. As expected, oil ministers of nine Arab nations* conferring in Tripoli reached a basic agreement last week to lift the ban on oil sales to the U.S., though not the similar prohibitions on exports to The Netherlands, Portugal, Rhodesia and South Africa. But they left the world waiting to hear just when and for how long they would permit oil to flow to the U.S. again; according to one report, they will decide two months after the embargo's end whether to keep the oil flowing or cut off shipments once more. They were equally silent on how soon they would cancel a 15% production cutback and pump as much oil as they did before the Arab-Israeli war broke out last October--a matter of even more importance for U.S. and world oil supply and prices than the embargo itself.

Facade of Unity. Many of these all-important details are likely to be cleared up this week during a meeting in Vienna of the Arabs and representatives of other oil-producing countries. But they remained shrouded in mystery last week because the Arabs were going through diplomatic contortions to maintain a fac,ade of unity despite deep divisions. For weeks Egypt and Saudi Arabia have been trying to persuade the other Arab nations to lift the oil embargo in recognition of Secretary of State Henry Kissinger's effort to arrange an Arab-Israeli settlement. But they had met strong opposition from Algeria, Syria and especially Libya, whose leader, Colonel Muammar Gaddafi, is the Arab world's most vehement critic of the U.S. Those nations would not even attend a meeting two weeks ago in Cairo that was supposed to proclaim what most of the Arab governments already had privately decided: that the embargo should be lifted. Algerian President Houari Boumedienne insisted that the meeting be held in Tripoli as originally scheduled.

In order to preserve the show of unity, Gaddafi permitted the meeting to take place, but he proved a less than gracious host. According to Egyptian newspapers, he showed his displeasure by sending in a huffy note declaring that, "I will not have Libya tarnished by having an announcement on lifting the oil embargo against the U.S. issued in Tripoli." Reportedly, the ministers nevertheless reached a compromise proposed by Algeria: the embargo will be lifted soon, but that decision will be reviewed in two months. If, in the Arab view, the U.S. has not kept up sufficient pressure on Israel to reach a settlement with Syria on troop pullbacks on the Golan Heights, the embargo could be resumed. Still, in view of Gaddafi's position, the ministers thought it the better part of valor not to announce that decision or indeed anything at all except their plan to reconvene in Vienna at a meeting of the Organization of Petroleum Exporting Countries.

While still awaiting official clarification of the Arab position, President Nixon warned the Arabs that the U.S. expects the embargo to be lifted with no strings attached. Should the Arabs attach any conditions to the embargo's end, he told a gathering of businessmen in Chicago, "it would have a counter-effect on our efforts to go forward on the peace front." Even so, the U.S. could draw cheer from the week's developments. On American television, Saudi Arabian Oil Minister Ahmed Zaki Yamani said flatly that the embargo would be lifted and that that move would be coupled with an increase in production, though he did not specify how large. If the Arabs return to the oil-production levels attained last September, U.S. petroleum imports within three months could rise by one million bbl. a day or more--enough to nearly close the nation's current oil gap. Moreover, once renewed supplies of Arab crude are guaranteed, the Federal Energy Office is ready to permit a drawdown in inventories of gasoline and other fuels to give the flagging economy a quick pickup. FEO officials also are expected to drop the long-standing voluntary ban on Sunday gasoline sales.

Higher Prices. In the short term, the resumption of Arab oil shipments could push U.S. petroleum prices even higher, because oil companies would be importing larger volumes of high-priced Middle Eastern crude and expensive refined products from Europe. Indeed there have been reports that O.P.E.C. officials are considering another rise in crude prices, which have been hovering at about $11 per bbl. Nonetheless, some analysts expect the upward trend to be reversed and look for an actual drop in world crude oil prices over the course of the next year. Prices will surely not return to pre-embargo levels. Indeed, because world oil consumption has been curtailed by 10% or more, in part by conservation measures, and non-Arab oil countries such as Iran and Indonesia have stepped up their output, a return by the Arabs to prewar levels of production could eventually create a temporary glut of oil that would push prices down. The first sign of such a possible trend occurred a few weeks ago when Kuwait tried to auction off 85 million bbl. of crude at $11.54 per bbl. At that price, the Kuwaitis could find no buyers for most of the oil.

* Algeria, Bahrain, Egypt, Kuwait, Libya, Qatar, Saudi Arabia, Syria and the United Arab Emirates.

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