America’s China Policy Is Not Working
The Dangers of a Broad Decoupling
IN THE contemporary world oil is power. It is power in time of peace to develop great industrial establishments, and to transport goods and passengers on land, at sea and in the air. Its value as an item of trade exceeds that of any other commodity. In time of war, oil is power to expand industry and to exert strength at great distances. Atomic energy may partially supersede oil some day as a driving force in the modern state, but not in the visible future. Since oil is a prime essential for American security, our policy in regard to the supply and use of oil must be in harmony with other elements of national policy in United States strategic planning. In important respects it is not in harmony today.
The primary fact of the problem is that our requirements cannot be measured in commercial terms. If war could be dismissed as a possibility, the amount of oil that the United States will need at any given time could be fairly well calculated in advance. But the amount of oil we would need in an emergency in which the survival of the nation was at stake can hardly be reckoned. The only certainty is that in such an emergency the demand for oil would rise according to the degree of danger. Thus the imponderables of war enter into everything touching the discovery, production, refining and use of oil. Even in "normal" times the commodity value of oil is affected by political considerations.
In 1948, the former Petroleum Administrator for War, Mr. Ickes, stated that, except for a few local rules and regulations, "we have never had a national policy on oil and we have never had an international policy on oil."[i] It appears doubtful that the omission has been repaired in the interval. Of course, there are practices amounting to segments of policy relating to particular features of oil production, transportation and marketing, both at home and abroad--some of them the work of the oil industry, others the fruit of administrative decisions by government agencies. But there is no policy embracing both short-term and long-term programs.
To point this out is not to underestimate the complexity of the problem, subject as it is to physical, economic, political and military factors. Conditions which obtain with reference to world oil in one year seldom obtain in the next; dearth and plentitude of oil seem to follow each other as do the seasons, against a shifting background of international relations. Almost the only constant elements in this ebb and flow are a progressively increasing demand for oil products, both in this country and abroad, and an eventually diminishing world supply of raw petroleum. But some of the factors affecting decisions which must be taken without loss of time can briefly be described.
The supplies of petroleum available to the United States from Western Hemisphere sources, notwithstanding a temporary shortage of gasoline for military purposes, were ample for 1950. For the time being, the world supply also appears to be adequate. If the international political outlook were favorable, there would be no occasion for great concern regarding oil supplies for a number of years. But since the prospect for peace is dubious, to say the least, three basic questions must be raised. The first is: To what extent should the oil reserves of the United States be conserved by being supplemented by imports while the international situation permits? The second is: What are the oil needs of the countries of Western Europe? The third is: Where can the needed oil be obtained and what shall we do to safeguard the supply? The answers to all three questions point to the Middle East; but the problems they raise have many ramifications.
There was a widespread belief at the close of World War II that the United States would soon be compelled to lean heavily on oil imports or on a large-scale synthetic oil industry, or both, to supplement our domestic production. Some leaders of the oil industry now believe that United States oil resources within the Western Hemisphere can meet all demands for a number of years, and that even in war they would satisfy domestic needs. This conclusion reflects several recent developments: the discovery of new and potentially rich oil deposits, especially in Canada; new techniques in deep drilling and in the secondary recovery of oil; improvements in refining; promising progress in the production of oil by synthetic processes; more economical types of oil-burning engines; and the rapidity with which the serious oil shortages of 1946, 1947 and early 1948 were overcome.
For the short run such optimism may be justified. Within the oil fields of the United States alone are at least 26 billion barrels of petroleum, perhaps a third of the oil reserves of the world. It is possible that other deposits are as yet undiscovered. To such resources can be added the reserves of Canada, potentially large. Venezuela, lying within the area of political influence of the United States and much the richest in oil of other parts of the Western Hemisphere, possesses about 9.5 billion barrels of untouched oil, more than 12 percent of the world total. Some would add to these resources the proved reserves of Mexico, Colombia and Trinidad. Together the countries of Latin America possess nearly 11 billion barrels of oil reserves, about 14 percent of the world total; and, in all, the deposits in the Western Hemisphere represent roughly half of the world's known oil reserves. At the current rate of usage (without taking into consideration the likelihood that other deposits will be proved) they should satisfy peacetime requirements in the producing states for perhaps 20 years.
But even in the short run there are several reasons for caution about the situation. Oil fields do not produce at a uniform rate up to the point of exhaustion. Figures of proved oil reserves do not always convey a good idea of the future volume of production. The United States domestic oil production in 1949 amounted to the impressive total of 1,840,307,000 barrels. This was the combined flow, however, of 449,545 wells: an average production of only 11 barrels daily per well. In Venezuela the production of 457,176,000 barrels in the same period came from 6,236 wells: an average flow of 201 barrels daily per well. Quite in contrast, the Middle East production in 1949 of 512,275,000 barrels came from only 208 wells, the flow averaging about 5,500 barrels daily per well. This means simply that many United States fields are old, over-exploited and declining in production. It suggests that even intensive exploring and wildcatting cannot be expected long to maintain the present rate of production. Except for the promise of young Canadian fields, the outlook for long-continued production in the fields certain to be available in time of emergency would be dim. The astonishing output in the Middle East reflects the characteristics of young fields likely to be productive for a good many years.
Meanwhile, there is no apparent likelihood that the consumption of oil products in the United States will be stabilized at the 1949 or 1950 levels. During World War II, as industries expanded and needs of the armed services grew, consumption increased at the rate of about 100,000,000 barrels annually. But instead of tapering off at the close of the war as expected, civilian demand continued to grow almost at the wartime rate. Consumption of oil products in 1950 amounted to approximately 6,500,000 barrels a day. This is a phenomenal rate of usage, amounting to two-thirds of the oil consumption of the world. Such a pace cannot long be maintained at the present rate of oil discoveries within the "safe" zone of the Western Hemisphere. In order to sustain maximum efficient rates of production and to provide a backlog of producing capacity so that the country will not be too largely dependent on the vagaries of new discovery, there must be proved reserves in the ground of something like 12 or 13 times the annual consumption. Proved reserves must rise with current requirements, if production is not to be wasteful and if there is to be a substantial surplus for a time of emergency. To satisfy United States demands on a peacetime basis and to maintain reserves in the same ratio to production as in 1950, more than 34 billion barrels of new oil reserves would have to be provided in the United States (and Canada) within the next ten years. Not even the most optimistic estimate can count on such discoveries.
Above all other reasons, complacency about our oil supply is dangerous because we must have a reserve supply for emergency. What wartime demands could do to the 20-year supply sketched above can readily be imagined. Moreover, is it wise to assume that in a third world war the United States would have uninterrupted access by sea to the oil ports of the Caribbean? Our experience with German submarines in World War II is eloquent on that point. And can we be perfectly sure that if the United States had her back to the wall, all of the oil states of Latin America would strain every nerve to make sure of the oil flow to this country? In short, since it is necessary to assume that the oil production of the United States, plus that of Canada and even the Caribbean, will not be equal to wartime demands, national safety demands that we protect ourselves either by importing and stockpiling oil, or by developing sources of oil fuels other than crude petroleum.
The most essential derivatives of petroleum for a highly industrialized country are fuels and lubricants. The present emphasis is on high-octane gasoline, though this may possibly be lessened. By various forms of synthesis and refining these fuels and lubricants can be obtained from natural gas or from coal or oil shales. The United States is unique among nations in having almost inexhaustible deposits of bituminous coal, lignite and oil shales. Whether synthetic products can compete in quality and price with petroleum fuel is still questionable, but there can be little doubt as to the advisability of continuing experiments in the synthetic processes. Doubtless, too, one or more plants for the production of oil fuels in significant quantities should be constructed. But despite the great need of national self-sufficiency in oil, present evidence points plainly to the wisdom of planning to satisfy the major portion of both normal and emergency needs for fuel and lubricants by means of petroleum products, for a number of years to come.
The certainty that the need for oil fuels of all types would vastly increase with the advent of another major war has prompted studies of the feasibility of importing and storing oil in quantities great enough to tide the country over another war effort. During World War II, with the demand for petroleum products nearly twice that of the prewar decade, the daily rate of domestic oil production was stepped up until in 1945 it reached a point approximately 1,000,000 barrels above that of 1941. During four years of war, between 1941 and 1945, the United States oil requirements for all purposes were 1.25 billion barrels in excess of those of the years 1938 to 1941. In another war requirements would mount far higher. To provide a fair margin of safety against the possibility that supplies from the Middle East would be cut off, and the possibility that those from the Caribbean might be temporarily interrupted, an oil stockpile of the order of a billion barrels of crude would not be over-large. The fields of the Middle East are quite capable of producing that amount within five years at most, over and above the amounts expected at present rates of production.
Could such a quantity be transported from the Middle East and stored in semi-permanent fashion in the United States? A new tanker fleet of about 150 vessels of the latest type would be needed to import 200,000,000 barrels of oil a year. The cost both in steel and in dollars would be burdensome, since this tanker fleet would have to be added to the existing one. It is also problematical, at the present time, to what extent the new and prospective pipelines from Middle East oil fields to the shores of the Mediterranean would prove equal to the task of supplying the additional billion-barrel total.
The storage of such an amount of oil in the United States would also offer problems. The building of "tank farms" above ground to accommodate oil in billion-barrel lots is open to very serious question, for such concentrations would be extremely vulnerable to sabotage or enemy bombing, and the construction of enough tanks to hold an extra billion barrels of oil would place a strain on steel production. Moreover, oil so stored for considerable periods is likely to suffer from deterioration. Although in 1950 more than 560,000,000 barrels of crude oil and refined products were stored temporarily above ground in the United States, and perhaps 50,000,000 barrels more in other parts of the world for the use of the U. S. armed services, large-quantity, longterm oil stockpiling in metal tanks for strategic purposes is not generally regarded with favor by competent authorities.
At one time or another the practicability of storing crude oil in large amounts underground has been considered. Abandoned mines have been studied with this end in view, but expert opinion has been almost uniformly unfavorable. Proposals for pumping crude oil into depleted natural underground oil and gas reservoirs also is open to serious objections. In fine, the disadvantages of bringing oil from considerable distances and storing it in the United States appear definitely to outweigh the advantages, even if the monetary cost is disregarded.
There is another form of stockpiling for an emergency, however, which is more practicable, namely, the segregation of proved domestic oil fields. The problems involved here are of an entirely different nature. They include the necessity for careful measurement of production potentialities, the drilling and closing in of the requisite number of wells for production when needed, precautions against drainage from the shut-in fields, and suitable arrangements between the government and the oil industry for ownership or leasing, drilling, testing and emergency operating. Such a plan implies, of course, that we shall import sufficient oil for current use to make up for the supply taken out of use. This type of stockpiling is exemplified by the field at Elk Hills, California, which, although established as a federal reserve in 1912, has been developed largely since 1942 as Naval Petroleum Reserve No. 1. Other naval oil reserves also have been set aside in the United States and Alaska, but their combined full production is but a tithe of what may be needed to supplement regular production.
In the present state of world affairs, the oil problems of the United States cannot be considered apart from those of the Marshall Plan nations of Europe. The defense of free Europe is vital to the defense of the United States in the event of another world conflict, and the evolution of the "cold" war into a "smolder" war gives a strong practical impulse to what might otherwise appear to be a moral duty. Oil supplies for the rehabilitation and rearmament of free Europe are hardly less important for our security than oil for the armed services of the United States.
The oil production of Europe outside of the Soviet orbit is small and far below current needs. At the close of World War II the European area was not able to supply more than 20 percent of its requirements from its own sources of crude oil and liquid hydrocarbons. The remainder was obtained from the United States, the Caribbean and the Middle East. The withdrawal of some oil-producing areas behind the iron curtain and the steadily increasing requirements of Western Europe under the Marshall Plan have worsened these proportions. During the years 1948-1950, Western European oil production shrank to about 5 percent of current needs, necessitating the importation of substantially all of the oil products required for the resumption of normal economic life and a modest degree of rearmament. Hence, while oil shipments from the Western Hemisphere to Europe continued throughout the period of oil deficiency in 1947 and early 1948, United States Government agencies naturally gave every encouragement to the substitution of Middle Eastern for American oil for Europe.
For Europe to draw on the Middle East for its requirements in oil is generally advantageous. It relieves pressures on Western Hemisphere reserves. Economic factors recommend it. Transportation distances from Mediterranean terminals are shorter than from those in the Americas; and although the price of Middle East oil since 1948 has shown a tendency to rise, the costs of crude oil and refined products delivered at European ports favor Middle East sources. The fact that much of this oil can be purchased with sterling and, to a modest extent, with francs, makes possible the husbanding of Europe's dollar resources, though at some disadvantage to the American oil companies engaged in Middle East operations. It is now expected that by 1952 almost all of the oil imports of the Marshall Plan countries will be supplied from the Middle East.
The logic of all of this is inescapable. A prime requisite of any United States plan of strategy for world security is to make certain, at all hazards, that the oil fields of the Middle East do not fall into totalitarian hands. In the event of major hostilities and the sudden upsurge of demand for oil products, sources of production in the Western Hemisphere might not supply our needs for long, and probably would not meet them even briefly without permanent damage to the producing fields. Circumstances can arise in which our need for Middle East oil is scarcely less than that of Europe's--and Europe's needs and our own are hardly separable.
It would be a mistake to overlook the fact that Middle East oil fields are strategically vulnerable. They lie at long distances from United States and Allied bases, and even if the sea lanes remain consistently in Allied hands, virtually all of the oil fields and refineries in the Middle East area lie within Soviet bombing range. They also lie within reach of hostile ground forces. The natural distaste of the Middle East peoples for Communist ideology, coupled with the fact that oil production in the area is wholly in Allied hands, might suggest the likelihood of strong local resistance to aggression from the Soviet Union. Unfortunately, such a response is not to be depended on. The Arab states in particular entertain far from cordial feelings toward Great Britain, France or the United States. Their willingness to deny themselves considerable income in royalties for the sake of denying oil to Israel is a clue to the political situation there.
Turkey, however, is a staunch friend of the United States. It is here that the oil regions of the Middle East can best be defended. The Turks are stout fighters on their own soil, and, operating with relatively small but mobile Allied forces, with strong air support, and exploiting fully the rugged terrain, could be expected to offer real opposition to an invader.
Even so, we must be prepared for interruptions, at least, in the all-important supply of Middle East oil. Supplies necessary to keep free Europe at war strength, and to drive the armed forces of the United States without hampering industry, can be accumulated only if action is taken well in advance of a crisis. Until synthetic processes can compete with petroleum products in quantity, quality and cost, therefore, security must be sought in some form of oil stockpiling. This must be done on a scale commensurate with the extraordinary requirements that would be likely to accompany an all-out military effort. The only method of oil stockpiling which now appears to be practicable takes the form of oil reserves fully developed in time of peace but unutilized except as necessary to keep individual wells ready for prompt use in time of emergency. This means the substitution of government for private control of shut-in reserves, and for the investment of public funds on a large scale. It may mean also the withdrawing from private enterprise of unit fields whose production would be used to maintain the usual level of domestic oil supply. It involves replacing the oil thus impounded with imports from the Middle East.
The independent oil companies would suffer some hardships from the limitations placed on their exploitation of domestic oil resources, and from imports of oil--even though American-owned--from abroad. The furor caused by importations of Middle East oil during the months of stringency in 1947 and 1948 would make governmental agencies reluctant again to issue licenses for oil imports which might be thought to affect either the quantity or the price of domestic production. And the necessity of a conservation policy of this nature--though it would become obvious enough if war came--no doubt would be challenged. It is never easy to balance private interests, which are specific and immediate, against national security, which is likely to be relative and more or less remote, in a country whose economic life rests primarily on private enterprise. Nevertheless, it is proper to ask all Americans to remember that if the nation is insecure, the outlook for private economic interests is exceedingly poor. Security for the United States rests to an uncomfortably large extent on ready supplies of oil.
[i] Hearings before the Special Subcommittee on Petroleum of the Committee on Armed Services of the House of Representatives, March 11, 1948.