The Arab states have used their most potent weapon in the Middle East conflict. Supplies of oil to the United States are to be cut 5 per cent, escalating each month ╥until Israeli forces have left the occupied lands and restored the rights of Palestinians.╙
Late last night the Foreign Office and the oil companies were trying to find out whether Britain was included in the ╥other industrial countries╙ friendly to Israel which will also have their supplies cut.
But amidst all the uncertainty, one thing is certain: petrol prices will go up by at least 1.5p-2p a gallon, and this could well rise to a staggering 9p a gallon following an earlier decision by the oil states to raise the price of oil.
The price increases demanded by the producers will effectively raise their oil revenues by 70 per cent, more than offsetting any loss because of oil cuts to America. If the oil companies in Britain decide to pass on the increase across their whole range of products, then petrol will rise by 1.5p or 2p. But if they decide to pass it all on to petrol, then motorists will have to pay up to 9p a
gallon more.
Quite apart from any oil cut-off fears, the price rise is a crippling blow both to the balance of payments and the Government╒s anti-inflation policy, which is firmly based on a belief that the price of raw materials will drop.
The 5 per cent cut to America will be based on each preceding month╒s production, effective from last month ╤ thus diminishing the supplies of oil each month that the conflict and subsequent peace negotiations drag on.
The decision comes at a time when America had been counting on a steady increase in Middle East supplies to meet its growing energy needs. It had hoped that Saudi Arabia would increase production from seven million barrels to 20 million barrels a day over the next few years.
At present, the United States is importing only about one million barrels of oil a day ╤ half the amount that Britain does ╤ from the Middle East and Libya. This is about one-third of its growing import total, and 6 per cent of its consumption.
The Arab decision creates a cruel dilemma for America╒s allies in Europe, including Britain. There is an acute shortage of refining capacity in America, and another million barrels a day of refined products are shipped there. The European governments, if they continue these shipments of what was originally Arab crude oil to America, run the risk of having their own supplies affected in retaliation.
The shortage of refining capacity has already compelled President Nixon to announce rationing of various heating oils and a large number of garages do not have enough petrol for their customers.
The decision by the producing states to increase prices ╤ which the oil companies have little option to accept since the producers said their decision was final ╤ has ensured that the Arab states will suffer no loss of revenue as the production cuts increase.
The oil states have demanded what amount to 70 per cent increase in revenues. A statement by the oil companies last night said the increase would have ╥far-reaching effects╙ on the economies of the consumer countries. Further increases in costs are expected ╤ tanker freight charges have shot up to almost six dollars a barrel for the trip from the Persian Gulf.
If Britain is definitely excluded from any restrictions it will come as a relief. The president of the Confederation of British Industry, Mr Michael Clapham, said yesterday that in industry ╥people are beginning to brace themselves for the possibility that we may have an allocation system╙ of fuel this winter. The CBI had been studying a report, prepared before the Middle East war began, which estimated that the supply situation was already marginal.
Mr Denis Healey, Shadow Chancellor, warned the Prime Minister in the Commons last night: ╥If he is forced to introduce rationing for petrol I think he will have a revolution on his hands.╙
The Kuwait oil crisis is now going to be the acid test for the Heath-Home policy of an arms embargo in the Middle East. Although Whitehall stubbornly refuses to say which Arab countries are on the embargo list, beyond the obvious ones of Egypt, Syria, and Jordan, it would appear that the Kuwait Foreign Minister, Sheikh Sabah Al Ahmed, has received no message of any kind to suggest that the flow of arms, ammunition, and spare parts for this country╒s forces will be interrupted.
If the strategy of Sir Alec and his advisers at the Foreign Office of avoiding offence to good Arab customers and oil suppliers, is going to pay off it should supposedly be now, in the case of Kuwait. Where Mr Heath and Sir Alec will be on weak ground in the Commons debate today on the arms embargo is in the Kuwaiti ╥leak╙ to one of the battlefield countries in the present fighting. It was disclosed on March 29 this year by Sheikh Sabah, the Foreign Minister, that Kuwait had already sent one of her squadrons of British-built Lightning fighters to Egypt.
