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Gulf States Aim to Squeeze More Profit From Oil. Controlling oil from well-head to gas pump fattens the bottom line. MOVING DOWNSTREAM

By Staff writer of The Christian Science Monitor / January 13, 1989


INVESTMENTS by Gulf oil states in refining and marketing assets in the United States, Europe, and Asia are changing the face of the world petroleum industry. These moves raise questions about what oil markets will look like in the 21st century. The US Congress, for instance, is concerned that national security could be threatened as a result of US dependence on foreign supplies from increasingly powerful national companies in the Gulf.

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Oil company officials and market analysts in the Saudi capital are aware of such concerns. But they say the Gulf states' ``downstream'' investments in foreign refining and marketing facilities are giving long-term energy stability in the West by establishing direct interrelationships between producers and consumers.

``It actually contributes to US security because it gives a producing nation an interest in the US economy,'' a Western diplomat says.

Some analysts argue that the new investments will virtually eliminate the prospect of future Arab embargoes like the one prompted by US military assistance to Israel during the 1973 war with Egypt. ``It takes away the strategy of using oil as a weapon,'' an oil company executive says. ``It would be difficult and costly to use it against a market in which you have an interest.''

``We in no way will play around with this. We have never done that,'' says a senior Saudi official, discussing recent Saudi investments that are petroleum-related in the US. ``It is more a guarantee (of long-term Saudi supplies) to the US,'' he stresses.

Many analysts here maintain that national, fully integrated companies run by Saudis or Kuwaitis will operate in much the same way that the US and European oil majors do, guided more by the bottom line than politics. And they stress that they will be subject to the same laws, controls, and market forces.

Historically, the Gulf states have been involved primarily ``upstream,'' exploring for and producing crude oil. They sold their output to international companies who did the refining and marketing in Europe, Japan, and the US. This basic relationship began shifting in the early 1980s as the Gulf states increasingly moved to control their oil from the well-head in the desert to the gasoline station on Main Street, USA.

The advantages to the Gulf states are many. At a time of glutted world markets and tough competition, the Gulf states see such acquisitions as a guaranteed outlet for their oil. In addition, because gasoline prices don't fall as quickly as crude prices, downstream investment helps insulate the Gulf producers from prolonged weak crude prices.

The push downstream isn't unique to the Gulf states. Venezuela, Mexico, Libya, and Norway have made similar moves. But what is unique to the Gulf is the concentration of more than 60 percent of the world's proven oil reserves under only five nations (Iran, Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates). Analysts note that as world reserves are drawn down in the US, the Soviet Union, and elsewhere, the Gulf states and their national companies will become more important on the world stage.

``Nothing will keep it from happening,'' says an experienced Gulf analyst based in Washington.