Russia’s Missing Peacemakers
Why the Country’s Elites Are Struggling to Break With Putin
The multitude of articles, news reports and commentaries on the energy "crisis" in recent months have been chiefly concerned with four basic issues: (1) a growing (and by implication, a worrisome) oil "shortage" in the United States and the industrial world; (2) an intimate (and by implication, an unholy) alliance between the major oil companies and the Organization of Oil Exporting Countries (OPEC) at the expense of the consuming public; (3) an increasing (and by implication, an undesirable) redistribution of oil revenues through higher oil prices in favor of producing countries, giving them significant (and by implication, excessive) controls over future oil supply and foreign exchange reserves; and (4) a need for concerted action (and by implication, "drastic measures") on the part of the oil-short countries vis-à-vis the "oil cartel."
An obsessive preoccupation with the superficial and adversary aspects of these issues has in turn given rise to some unfortunate misunderstandings regarding the real problems facing both oil producers and oil consumers in the next decades. The need for a more balanced assessment of these problems, and for a constructive world view of the situation, has never been so compelling.
The genesis of the present energy "crisis" is no mystery. Oil is being depleted much faster than other sources of energy, and its price has been on the rise. Oil suppliers, however, are not the cause of the oil "shortage." Rising oil prices are symptomatic of an expected imbalance between potential sources and uses of oil. And the oil demand and supply arithmetic within the whole energy picture is very simple. In the last three decades the world has used up more energy than in all previous history. In the next years mankind is expected to use up as much energy as it has up to now. On reasonable present predictions, more than 70 per cent of this energy need will have to be met by hydrocarbons, i.e. percent by gas, 54 by oil. Yet despite such unprecedented demands, the supply of natural gas and crude oil has failed to keep pace because production incentives have been weak and inadequate—reflecting in part a deliberate and deceitfully plausible policy by the industrial world to keep premium energy prices below their true costs.
Between 1945 and 1960 the non-Communist world energy demand expanded at the rate of 4 percent a year. During the 1960s the annual growth rate reached nearly 6 percent. On the basis of past trends the total energy demand may double between 1970 and 1985, reaching over 145 million barrels per day (b/d) of oil-equivalent. Total U.S. energy consumption is estimated to double from 33 million to 63 million b/d between 1970 and 1985. Consumption in the European Economic Community (EEC) in the same period is expected to rise by 93 percent; that of Japan by 156 percent.
To meet such enormous energy demands there are three alternatives: (1) to raise the supply of conventional sources (e.g. coal, crude oil, natural gas and hydroelectricity); (2) to look more seriously into further development of more expensive substitutes (e.g. oil shales, tar sands and nuclear power); or (3) to develop exotic energy potentials (e.g. geothermal, solar power, tidal waves and hydrogen fusion). An increase in the supply of coal and hydroelectricity is time-consuming, costly or replete with significant technical and environmental limitations.[i] Exotic potentials—now in experimental use for heating and power in some countries—are expected to remain marginal, at least for the rest of the twentieth century, because of enormous technological complexities and high costs.
The combined supply of the first two categories in 1985 is now estimated to amount to 20.3 million b/d (of oil-equivalent) for coal; 23.2 million b/d for gas; 14.5 million b/d for nuclear energy; 8.7 million b/d for hydroelectric power; 1.4 million b/d for oil shales and tar sands. The lion's share of the total energy market—54 percent or 78.3 million b/d—will have to be provided by crude oil.
Oil reserves are not evenly distributed among nations. Nor is the thirst for oil. More than 63 percent of total world proven petroleum reserves are located in OPEC territories—mostly in the Persian Gulf area. The rest is chiefly owned by the United States (about 6 percent) and the Socialist or "non-market" camp (about 15 percent).[ii] On the demand side, the unevenness is equally striking. With six percent of the world population, the United States consumes almost one-third of all world energy and one-third of global oil consumption; it now produces about 11 million barrels of oil a day and consumes nearly 17 million b/d. The Common Market consumes 13 million b/d and produces only .5 million. Japan produces virtually no oil, but uses 4.6 million b/d. With an inadequate supply of indigenous hydrocarbons, the energy-hungry countries of the industrial world are, therefore, increasingly dependent upon oil imports—America 30 percent, the EEC 90 percent, and Japan almost totally.[iii] Even the Soviet Union and China—so far self-sufficient in their energy requirements—may become oil importers by the close of this century.
The future imbalance between supply and demand for energy in general, and petroleum in particular, is indeed real and significant. But the present energy "crisis" is not a cataclysmic event. It has been in the making for years, and could have been predicted and dealt with long ago. What is novel in the energy picture is the public's awareness of the possibility of an oil-less world in the not too distant future. This, in turn, is caused by an about-face barrage of corporate advertising designed to sell the "crisis" instead of oil, and by the crucial role of oil imports ($4.6 billion in 1972) in U.S. overall trade deficits. To understand the embryonic origin of the present imbalance in the world petroleum market—chiefly, the U.S. oil "shortage"—one has to examine (a) the behavior of oil prices and profit distribution between 1946 and 1971, and (b) the gradual shift by industrial countries to oil and gas as a major source of fuel, with two unfortunate results: an accelerated depletion (and wasteful use) of premium hydrocarbon resources, and an inequitable distribution of world income.
First, a word on oil prices and profits. By a bounty of nature, the fossil fuel floating underneath the Middle East and North African sands and offshore waters is of such quality and ease of reach as to make extraction costs at the wellhead only a fraction of such costs in other parts of the world—10 cents a barrel on the average for the Middle East, compared with roughly 51 cents in Venezuela, 82 cents in Indonesia, $1.31 in the United States and 80 cents in the U.S.S.R. in recent years). Since oil of the same quality is bound to obtain uniform f.o.b. prices in the world free markets, Middle East and North African crudes have up to now offered their owners an enormous windfall profit—what economists call Ricardian rent—stemming from the difference in production costs compared with Mexican Gulf suppliers and other high-cost producers.
The postwar history of the oil industry is a story of a continued jockeying among petroleum exporters and the oil majors, to divide (and appropriate) this rent. In the heyday of the seven major international oil companies and the oil boom at the end of World War II, the rent was divided pretty unevenly between the oil-producing countries (18 percent) and the oil concessionaires (82 percent). The consuming countries reaped the competitive benefits of low-price oil in the form of a Marshallian "consumer surplus." The low oil prices also permitted the oil-importing countries to finance part of their infrastructures through import duties on fuel and stiff excise taxes on gasoline, thus siphoning off part of the "surplus." The practice still continues.[iv]
The companies' oligopolistic grip on world oil production, refining, transportation and marketing was gradually loosened by several new developments: the entry of independent oil producers in the world market; emergence of the Soviet Union as an oil exporter; creation of national oil companies in the producing countries; and declining political influence of the oil majors on their own governments. With each crack in the oligopolistic structure, a notch was added to the producers' share. The establishment of OPEC in 1960 served as a final turning point in the long struggle by the producers to get their due share. Thus the 18/82 ratio per barrel of oil in 1948 became 32/68 in 1952; 50/50 in 1960; and 70/30 in 1970. Nevertheless, rising volume of production and exports (without much additional new investment required) gave the oil majors a ratio of income to their net Mideast assets of 55 percent in 1970. The ratio of crude oil income to net assets in crude oil production in the same year was nearly 100 percent.
The gradual change in rent-sharing in favor of oil producers was only partly effective in taking from the Caesars that which was not theirs. As long as the oil concessionaires had the prerogative of determining the posted price of oil (i.e. the price on which royalties and taxes were based) the sharing formula was of only small benefit to the owners. The price of a barrel of crude oil (34º API), fixed by the companies at $2.17 in 1948, was gradually and unilaterally brought down by them to $1.80 in 1960 in order to capture European and Japanese markets. Right after its establishment, OPEC managed to put an end to unilateral price determination by the companies. But precipitous attempts on the part of most producers to increase their exports (partly to offset the effects of price reductions and partly for higher total revenues) resulted in further reducing effective oil prices by offers of 35 to 55 cent discounts per barrel below the posted price.[v]
The second aspect of the present energy "shortage" has to do with the excessive and inefficient use of oil. Without doubt, the rapid postwar exploitation of Mideast and North African oil resources and their export at bargain-basement prices to West Europe, America and Japan helped provide the basic underpinnings of fast economic growth and unprecedented material prosperity in the industrial world. But, in retrospect, the costs seem to have been devastatingly high. And therein lies the fallacy of cheap oil, and the paradox of prosperity in the midst of poverty.
The rich industrial countries favored the cheap oil policy because of a false sense of security, as if the world had an inexhaustible supply of energy—as though no end were in sight. By an economic myopia of incomprehensible dimensions, millions upon millions of energy-gobbling products—from impractically big and fast cars to profligately trivial household gadgets—were allowed to flood the market, only to be replaced soon by bigger, faster and more power-thirsty models. Awed by the marvels of high-energy technology and lulled by the borrowed affluence of unfettered growth, the West refused to believe that its immediate energy demands were on a collision course with long-term environmental considerations.
Cheap oil as a matter of national policy was thus responsible not only for a worldwide shortage of energy, but for some possibly irretrievable damage to the earth's ecology.[vi] By keeping the Mideast oil price deliberately below its true scarcity value (in terms of production costs in other parts of the world, equivalents in other sources of energy, or replacement costs), the industrial world inadvertently perpetrated four hoaxes on itself and on its unborn generations. The artificially low price of oil (a) discouraged oil producers from searching effectively for new sources of supply; (b) helped hold down prices of substitutes (e.g. coal, gas and hydroelectricity), and likewise dampened their development prospects despite their huge reserves; (c) stifled and/or delayed research in the development of more efficient technology for the economical use of nonconventional energy sources; and above all, (d) contributed to an inexcusably reckless waste and inefficient use of world premium fuels. In the United States, for example, automobiles reportedly use only about 20 percent of the energy potential in gasoline, and 23 percent of their passenger capacity. Factories waste power by useless lighting and inadequate recycling. Residential and commercial buildings use 20 to 50 percent more heating and air conditioning than needed for comfortable but intelligent use. Electric generators use about three BTU's of fuel to produce one BTU of electricity.
In short, the post-World War II miracle of material prosperity and soaring consumption was achieved, partly at least, at the expense of colossal environmental degradation-air and water pollution, soil erosion, nuclear hazards, noise, congestion, junk piles and other material and nonmaterial disamenities brought down upon Spaceship Earth. In some countries the substitution of fuel-based energy for human energy caused serious and protracted unemployment. Backed up behind this facade of material affluence and progress are the intolerably high costs of cleaning and restoring the environment—accumulated costs which, if recognized in time and charged against beneficiaries, would probably have been less burdensome.
If the postwar miracle of GNP growth in Western Europe, Japan and the United States had been achieved mainly through a foolishly fast depletion of their own energy sources, the tradeoff might have looked less pointedly ironic. The staggering retribution which they must now pay to restore the earth's "finite, enclosed, life-support system" might have fit their self- inflicted sins both of omission and commission. But the irony of this economic miracle lies in the manner in which it was achieved—by subsidies from the oil-producing countries, mostly poor and struggling countries, at the expense of their limited irreplaceable assets.
Thanks partly to an uninterrupted supply of cheap oil—as low as $1.25 a barrel as late as 1970—the EEC countries and Japan raised their industrial production, boosted their exports, improved their balance of payments, saved their own solid fuel resources and amassed enormous foreign-exchange reserves. But now, not only does the affluent West feel no redeeming sympathy for such embarrassing enrichment at the expense of its unsuspecting and helpless partners; some Western politicians, economists and oil experts are self-righteously indignant about the prospect of having to pay the full scarcity value of imported oil through collective bargaining with OPEC.
OPEC was originally organized by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela in 1960 as a countervailing force to try to resist unilateral action by the oil majors to reduce the posted price of oil, action that was intensified particularly during 1959-60. Later, OPEC was joined by Algeria, Indonesia, Libya, Nigeria, Qatar and the United Arab Emirates. But despite their heroic resolve to stabilize oil prices and to prevent further deterioration of their terms of trade with their rich partners, OPEC members fought in vain for ten long years. It was only under the 1971 Tehran agreement that the basic oil price was raised upward of its immediate postwar level.[vii]
The news media accounts of OPEC negotiations since the 1971 Tehran agreement have been mostly concerned with price hikes and income boosts. Not surprisingly, little attention has been paid to four other and more positive features. First, the acceptance by the oil majors in February 1971 of a petroleum price policy based on "collective bargaining" instead of the previous practice of unilateral determination. Second, the introduction of an "escalator clause" or parity adjustment in income calculations—similar to the ones for wages—based on general price-level increases in industrial countries. Third, the establishment in December 1971 of a "real" price for oil based on "stable dollars" and free from exchange fluctuations, putting oil on more or less the same parity with gold. And, fourth, the acceptance in March 1972 by the oil majors of the principle of local equity participation in oil-company assets and profits.
The main thrust of OPEC's struggle for recognition and representation of producers' interests has thus been to see to it that the price of crude oil like other energy prices reflects its true cost, and that the legitimate interests of the owners are protected. This is neither an unreasonable goal nor necessarily a purely self-serving one. This is the way all prices should be set. This is what the environmentalists are asking for. This is what President Nixon has recommended in his recent energy message to Congress. If it looks like a sheep in wolf's clothing now, it is a blessing in disguise for the long-term interests of all mankind.[viii]
Now, a word on OPEC's rise and its future. There has been ill-concealed apprehension over OPEC's "victories" and their effect on future oil supply and world monetary reserves. Dark hints are made about the possibility of a "défi Arab"—an Arab challenge—to the Western corporate structure and international monetary order. Suggestions for remedies have ranged all the way from the innocuous gesture of coöperation among importing countries to the preposterous notion of "a planned takeover of the oil lands." Among other proposals along this competition-confrontation spectrum there has been persistent demand for breaking up OPEC, and putting the "genie" back in the bottle.
The proposal to break up OPEC and remove the oil companies from crude oil marketing (so as to increase competition among oil producers) is, to be sure, incredibly naïve. Apart from the insurmountable political and technical difficulties of such a "mission impossible" (who is going to put the bell around the cat's neck?) the practical effects on reducing future oil prices are far from certain. OPEC is what OPEC does. If it has any strength—and the critics believe it has too much—the reasons must be sought in the awareness, wisdom and determination of its members. It is indeed amusingly paradoxical that the organization itself is often credited by its critics with so much clout in setting oil prices, imposing participation conditions, putting political pressure on uncoöperative nations, and even denying Western access to its resources. Yet its individual member-governments are expected to act impetuously and irrationally in cutting their own throats and those of their former allies after OPEC's fall. Not only do OPEC leaders fully realize the futility of such actions now; even in their sophomore years at Harvard and Cornell they knew that no producer of an irreplaceable and vital commodity (who can sell all he can prudently produce at the going or higher prices) is ever going to lower his price no matter how competitively he may be expected to act.
Oil is just such a commodity in the present energy situation. Even an elementary oligopoly matrix, portraying the behavior of a few rival sellers, suffices to show that for prices to follow an upward trend no formal collusion or concerted action is essential: every smart seller, mindful of the reactions of his rivals, will find it ultimately suicidal to undercut them. Not to grant OPEC leaders this much instinctive sagacity would be the height of incredulity, if not the dawn of prejudice.
Another serious proposal for dealing with the energy "crisis" is confrontation: the formation of an organization of oil importing countries within the Organization for Economic Coöperation and Development or elsewhere to give backbone to the oil companies in any confrontation with OPEC, or to intervene directly in oil price negotiations. Whatever swashbuckling merits this type of confrontation may have, it looks both impractical and counterproductive. Impractical because, as is commonly recognized, the vital national interests of the oil-importing countries (particularly Japan, the EEC and the United States) do not always coincide; and they certainly do not tally with the interests of the oil companies. Japan, in particular, has been lukewarm toward this idea from the beginning. And EXXON officials have gone on record opposing the proposal on grounds of inflexibility, excessive bureaucratization, and undue interference by consuming governments in their business affairs. As The Wall Street Journal has put it, "the threat not to buy oil is totally incredible, while the threat not to sell it is only mildly incredible."
But even if such a united front could in fact be established and made effective, the results might aggravate the problem rather than solve it. As is well recognized by oil-industry leaders, the hostile atmosphere that ensues from such confrontations is bound to stiffen each party's position and lead to compulsive actions and reactions that may jeopardize the possibility of rational compromise and mutual accommodation. Some OPEC- member officials have made it clear that they regard an oil-consumer bloc designed as a cartel for purposes of confrontation as an "unhealthy and abrasive" development which is "never in the interests of the consumers."
Confrontation also seems undesirable because in the last analysis it is bound to be counterproductive. It can, at best, reintroduce past injustices (and inefficient use of oil) by denying oil exporters a fair price for their fast-dwindling assets. And, at worst, it can trigger needless interruptions of supply or export restrictions which would be in no one's interest.
There is, however, a third and more statesmanlike approach—closer international coöperation among oil-short and oil-surplus countries both in the intercountry allocation of available supply at reasonable prices, and in a joint endeavor for the development of other, cheaper sources of energy. The exact form of such coöperation is naturally subject to detailed and obviously difficult negotiations. A variant, frequently mentioned in America, is an international oil agreement—modeled after some of the more successful postwar commodity schemes—under which sovereign rights, economic interest and managerial prerogatives of the exporting countries are amply protected in return for an assurance of secure supplies at reasonable prices for the importers.
No matter what specific form and shape such international coöperation may take, however, its ultimate success will depend on the acceptance by the oil-importing nations of two unavoidable realities—unpleasant and unprecedented as they may appear. First, oil-short countries must realize that the era of cheap energy is past, and that they must be prepared to pay the true cost of their daily amenities powered by oil. Oil is relatively clean, easy to handle and still a comparatively cheap source of energy. For some uses, such as vehicular transportation, it is as yet unmatched. As a lubricant, it can perhaps never be totally replaced. It thus demands a price commensurate with its inherent qualities as compared with its substitutes.
The fact that some of the oil-exporting countries are small, sparsely populated, with no need for rising incomes, is legally absurd and morally baseless. "From each according to his need, to each according to his ability" is fortunately not yet a distributive criterion among civilized nations. The majority of OPEC countries are underdeveloped by Western norms. For almost all of them, petroleum is the mainstay of the economy. But oil is an exhaustible resource. Proven world reserves probably will last no more than a few decades at the present rate of exploitation. The OPEC members know that when oil is gone, the companies will be gone too. They are trying now to diversify their economies. They want to secure a decent standard of living for their unborn (and oil-less) generations—generations that shall, hopefully, be of little or no economic burden to other countries. Oil-producing countries are determined to develop their economies, not through foreign aid, not through concessionary loans, not by force, but through an improvement in the terms of trade with their rich partners-through full-cost pricing of their precious assets. They can hardly be denied this.
The second imperative for the success of mutual coöperation has to do with the provision of practical and profitable uses for the oil exporters' surplus investable funds. Much ado has been made of late about certain exponential (and by inference, alarming) projections of future "Arab wealth," and the Croesus-like flow of dollars to the Middle East in the years to come. Depending chiefly on world demand for imported oil during the next decade and a half, price increases per barrel of oil beyond 1975 (the termination of the Tehran agreement), and production policies followed by individual Mideast countries, OPEC's income in 1980 has been estimated at anywhere between $40 and $80 billion, with a cumulative total of some $250 to $360 billion. A third of these amounts is presumed to be saved by the recipients and added to world "excess" liquidity.
While the exaggerated and alarmist nature of these projections is acknowledged by some of the soothsayers themselves, there is no doubt that OPEC members are going to receive increasing amounts of foreign exchange for the sale of their oil assets, and part of the proceeds from these sales is going to be saved. But, for many reasons, this should be considered a welcome development instead of a disaster.
The OPEC members fall into three categories: (a) those who are net debtors and are expected to remain so, at least for the next decade, because their rising oil revenues will still fall short of their capital needs for domestic economic development; (b) those who may be net creditors now and in the future, but whose annual oil production is expected to remain at about the present level, and whose future annual receipts will not increase except for possibly higher oil prices and inflation; and (c) those whose production and incomes are destined to rise, but whose domestic investment opportunities are not likely to absorb their total foreign exchange revenues. In the first category are such producers as Iran, Nigeria, Venezuela, Indonesia, Algeria and Iraq. The second category includes Kuwait and Libya (although the latter may fit partly into the first category as well). Only Saudi Arabia, the United Arab Emirates and Qatar fall into the third group.
Incidentally, as this summary shows, more than one-third of the OPEC members (including Iran as one of its two top producers) are non-Arab. So is nearly 45 percent of OPEC's crude oil production, and almost 25 percent of its total reserves. To treat OPEC itself as an "Arab group," or to identify the revenues of its members as "Arab wealth," is thus incorrect.
The countries in the third category above, plus Kuwait and Libya, may be the ones whose revenues transcend domestic needs. Their combined annual revenues by 1980, in my judgment, might be in the range of $25-30 billion, rather than the higher figures now being estimated in some quarters.[ix] Better than half of these projected revenues will probably be spent internally by the recipients, with only the rest available for investment.
Now even a $10 to $15 billion surplus by 1980 (with an accumulation of, say, $50 to $75 billion by that time) may still seem like a lot of money available for speculation. But the caveats are numerous. If the possibilities of "drastic measures" should still loom on the horizon, or if profitable joint ventures should not be found, surplus nations would in all probability rather cut production than increase devaluation-prone reserves to be kept in foreign banks, subject to possible blockades. The Parkinson Law regarding revenues and expenditures works just as effectively in the Middle East as elsewhere. And, above all, whatever future surpluses may happen to be, they would look paltry in the context of (a) desperately needed development in the Arab world, (b) investment requirements in other developing sister countries, and (c) joint ventures with industrial nations.
To be sure, for every inhabitant of the "oil-rich" Arab countries there are eight Arabs living in other, oil-less, and relatively poor countries of the Middle East and in North Africa. Their annual per capita incomes range between about $80 (for the Arab Republic of Yemen) and $250 (for Tunisia); only Lebanon can claim as much as $600. For every dollar of increased per capita income in these relatively underdeveloped Arab lands, there is a need for three or four dollars of fixed capital investment. Thus even a modest increase of only $100 a year in income for the 90 million or so oil- less Arabs would require an investment of some $30 billion. And when the opportunities for investment in the West are contemplated, even the wildest estimates of Arab wealth would look quite modest. A "middle-of-the-road guess" regarding capital costs of meeting U.S.-projected energy requirements by 1985 is put at $500 billion. A similar sum may be required for the rest of the world. Why can Arab oil revenues not be attracted into such investment opportunities? And herein lies the importance of mutual coöperation in finding practical and businesslike outlets for future Arab reserves.
For obvious political reasons the West may not wish to see Arab money take a majority interest in General Motors or CBS or Imperial Chemical or Volkswagen. But why should it be difficult to designate industries, activities and degrees of control to which Mideast funds can be invited? The real catch is not the size of future Arab reserves, but how to use them peaceably, prudently and profitably. The West's real worries should not be about the principle of true-cost-pricing of oil, but the security of supply. And here, any workable coöperation between surplus and deficit countries should see to it that the flow of oil to the West not be interrupted under normal conditions, and that adequate provision be made for such an uninterrupted flow in all eventualities.
The real issues in the present energy "crisis" are, therefore, not the ones sensationally publicized. First, oil "shortages" in the United States (and depleted world oil reserves) are not caused by Mideast Midases or their "tax-collecting agents," but by a deliberate (and only in retrospect a short-sighted) Western policy aimed at prolonging the ephemeral luxury of cheap oil. The Middle East cannot be expected to meet the entire world's energy demand; nor can it be expected to subsidize industrialized countries indefinitely. It can only coöperate with other nations toward a more permanent solution. Second, consumers have not been victimized by a collusion between oil producers and oil companies, but mainly tax-whipped by their own governments and partly self-deluded into believing there is no end to nature's patience and generosity. Third, leaving the Cassandras, nervous-Nellies and ax-grinders aside, the prospect of OPEC's affluence should be regarded by everyone as a fortunate and desirable development for its members and the world as a whole rather than an object of Western damnation. And fourth, any attempt to hold down OPEC's oil revenues by "drastic measures" may not only result in fruitless and even dangerous reprisals and counter-reprisals, but would indeed be self-defeating.
Potential coöperation between oil-importing and oil-producing nations should thus be regarded as a triumph of reason and decency and fair play over shortsightedness and greed and prejudice. No measure of saber-rattling and name-calling on either side can obscure the common interests of the oil- producing nations and the consuming public in maintaining a stable and abundant supply of oil at reasonable prices. Up to now, Mideast costs and supply have determined world oil prices as well as prices of other energy sources. In the future, U.S. demand and other energy costs will set the pace in world oil prices. And in this lies the possibility of a rational solution to the world energy "crisis."
[i] The share of coal in total non-Communist world energy supply is now expected to fall to 14 percent in 1985, from 22 in 1970, 60 in 1950. Gas and hydroelectricity are to remain relatively constant, at 16 and 6 percent respectively. Only nuclear power is to increase by tenfold, although still no more than 10 percent of the total by 1985.
[iii] By 1985 (or perhaps sooner), the U.S. need for oil imports is estimated to reach nearly 15 million b/d or more than 50 percent of consumption.
[iv] Excise taxes alone on retail gasoline by industrial countries in 1972 ranged from a low of 32 percent in the United States to a high of 78 percent in Italy, with Japan, France, Great Britain and West Germany in the 55 to 70 percent range. In all these cases, taxes charged by consumer governments have exceeded oil producers' share per barrel of oil by more than three and one-half times.
[v] To isolate itself from a deluge of "dirt-cheap" oil imports, the United States imposed restrictive quotas on Mideast oil in 1959, and American domestic prices soon rose to $3.50 per barrel on the average, giving quota- holders a new $1.25 to $1.50 a barrel "windfall" profit for access to the U.S. market. The quotas were removed in April 1973 and replaced by a "fee" still designed to protect domestic producers from foreign competition.
[vi] The same short-sighted policy has been followed in the United States with regard to natural gas, the price of which at the wellhead has been fixed by the Federal Power Commission at about one-third of its full scarcity value.
[vii] Even the $2.60 a barrel f.o.b. price of crude oil in the Persian Gulf in 1973, however, shows less than 20 percent increase over the 1947 price, while the index of manufactured imports by Mideast countries has risen by more than 50 percent.
[viii] Recent studies show that supply and demand for energy are significantly price-elastic. Market forces, through scarcity-value pricing, can thus be mobilized in favor of energy conservation instead of its historical plunder. By the same token, it can be shown that a rise in the price of oil and gas may in fact result in a reduction of BTU cost, not only through more efficient use but through the development of substitutes.
[ix] My projections are based on the assumption of a 12 million b/d production for Saudi Arabia, three million b/d each for Kuwait and the Emirates, and two million b/d each for Qatar and Libya at the price scales laid down by the 1971 Tehran Agreement. These "middle-of-the-road" projections are clearly below those of James E. Akins (Foreign Affairs, April 1973, p. 480) ; he himself has pointed out that his demand estimates might not be met from the Middle East.