An Oil Gusher Builds

By the reckoning of outgoing Ohio Democratic Senator Howard Metzenbaum, depressed stock market prices offer newly rich oil-exporting nations the opportunity to control AT&T, Boeing, Dow Chemical, General Dynamics, General Motors, IBM, ITT, Lockheed, United Air Lines, U.S. Steel, Xerox and ten other major companies. A 51% interest in all these firms could be bought for some $47 billion, and the 13 members of the Organization of the Petroleum Exporting Countries (OPEC) will accumulate much more surplus capital than that by the end of this year.

New Limits. The oil producers, of course, are unlikely to make any such grandiose grab for industrial power. Nonetheless, officials of both the Treasury Department and the Federal Reserve Board now feel that some restrictions must be placed on investments in the U.S. by OPEC members. Federal Reserve Board Chairman Arthur Burns has indicated that oil-country investments should be confined to such nonsensitive companies as Quaker Oats and Coca-Cola (see TIME ESSAY, page 37). The Trilateral Commission, a group of academics, civil servants and businessmen from North America, Europe and Japan, is considering recommending a 10% limit on the voting power that foreign interests may exercise in American companies.

Indirect restrictions already exist.

The Washington Post reported recently that an Arab bid to invest $100 million in Lockheed Aircraft Corp., made this spring, was rejected by the company, even though it needed the cash. Arab investors suspect the deal was quashed by the White House. An Iranian bid to lend Grumman Corp. a similar sum was vetoed in August.

Even so, OPEC investment in Western nations is picking up. Kuwait emerged last week as the purchaser of up to 14.6% of Daimler-Benz AG, the producer of Mercedes vehicles. The deal cost the Kuwaitis $300 million to $400 million, by far the most ever spent for a stock acquisition by a Middle Eastern nation. Adnan Khashoggi, 39, a U.S.-educated Saudi whose non-oil business empire already includes two small California banks, recently offered $14 million for a one-third interest in the First National Bank of San Jose. Armand Hammer, chairman of Occidental Petroleum Corp., disclosed last week that "one very prominent Arab," whom he would not identify, bought more than 6 million shares of Occidental, an investment worth at least $80 million at current prices.

All that is holding a cap on an investment gusher is the conservatism of the lightly populated nations with the largest capital surpluses--Saudi Arabia, Kuwait and the Persian Gulf sheikdoms.

So far, they have placed their wealth largely in government securities and short-term, easy-to-withdraw deposits at a few major banks. But now the banks, worried about having so much "hot money" that they cannot safely lend longterm, are either refusing to take more short-term or demand deposits or are offering lower interest for them.

Where will the money go? The oil producers can use some--though not much--to buy out foreign holdings within their own borders. Last year Saudi Arabia paid $500 million for 25% of Aramco, the consortium that pumps and distributes Saudi oil, and last week agreement was reached for a 100% takeover by year's end. Western banks and a handful of investment banking houses have won contracts to direct petrodollars from oil-rich Arab nations to poor or heavily populated ones such as Egypt, Sudan and Yemen. But many of the poorer Arab nations will require years of "soft" (low-or no-interest) rehabilitation loans before they are prepared to absorb massive infusions of development capital.

Wall Street is well equipped to absorb the petrodollar billions. The Arabs, however, are suspicious of the fluctuating prices on stock exchanges. They prefer to lend money directly to Western companies, buy control of companies not listed on stock exchanges, participate in joint ventures with Western firms, and buy real estate. There is a limit, of course, to how much capital such activities can absorb, and the oil producers will inevitably be tempted to go for a piece of the big industrial action.

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