Cheap Arab oil: how and why

America's Middle East policy should center on a secure and plentiful supply of Persian Gulf oil at cheaper prices. The Soviet aggression in Afghanistan has paved the way to achieve that goal if the following myths are overcome:

* The Persian Gulf is running out of oil. The reserves of Saudi Arabia, the world's largest exporter of oil, are increasing, not decreasing. The Arabian-American Oil Company continues to find more oil each year than it produces, according to chief executive John J. Kleberer. Moreover, of 38 fields , only 15 are producing and the rest are capped. Saudi capacity could be doubled to 19 million barrels per day, but that would produce such a world glut as to shatter OPEC price-fixing and drastically reduce oil prices.

* There is no link between the supply and price of oil and settlement of the Arab-Israeli conflict. The Saudi Government stated in 1979: "We will not hesitate to produce twice as much as we are producing now, if that should be the price of an acceptalbe peace settlement in the Middle East." The rub is that what is acceptable to the Saudis -- Arab sovereignty over the Islamic holy sites in East Jerusalem and Palestinian self-determination -- is not currently acceptable to Israel.

* An independent Palestinian state would pose a mortal threat to Israel. There would be no threat from a treaty-bound nonmilitarizedm Palestinian state that the strong Israeli defense forces could not easily handle, especially if Israel had the right to reoccupy the area in the event of any Palestinian militarization. And a sovereign state can exist without an army, as Costa Rica proves.

The looming Soviet threat to the Persian Gulf from Afghanistan has eroded resistance to US bases in Egypt's Sinai and in Oman, at the throat of the Persian Gulf. Coupled with US-stocked forward bases in Saudi Arabia for emergency use, a credible deterrent can rapidly be constructed to safeguard the oil and oil routes.

The House of Saud is threatened not only by Russians in Afghanistan and Cubans in South Yemen but zealous Saudi fundamentalists who oppose the "corruption" of Westernization and seek a return to traditional Islamic puritanism of earlier days. The over 700 November attackers of Islam's holiest shrine, the Grand Mosque in Mecca, opposed Saudi Arabia's modernization efforts. The Iranian crisis and the militant Shiite threat to the Gulf sheikhdoms have also increased Persian Gulf insecurity. Gulf leaders worry about potential unrest of large numbers of foreign workers, especially Palestinians.

Most Gulf leaders believe that an American-induced Palestinian solution based on Palestinian self-determination would dramatically enhance America's prestige in the Islamic world and would serve US interests well. A basic American interest is cheaper oil to fuel a return to prosperity and to all of the benefits that go with a society built on hard work and cheap energy.

Cheaper oil, moreover, can bridge the Saudi-Israeli gap on what constitutes an acceptable peace settlement. Israel is losing the arms race to the Arabs, who are outspending Israel six to one. Financed by tens of billions from oil profits, the most advanced weapons are being supplied to Israel's enemies. And the economic drain of expensive oil on Israel reduces its own ability to finance weapons production and other defense measures. Cheaper oil would undercut the financial pinnings of those vast Arab arms purchases and greatly enhance Israeli security, much more than control of the populated portion of the West Bank and Gaza.

But, given Saudi sensitivity to formal US ties, A US-Saudi alliance can be ruled out unless Riyadh can simultaneously claim credit for solving the Palestinian problem and returning the Jerusalem holy sites to Arab control.

A new US Mideast policy would recognize the Saudi link between an acceptable peace settlement and the supply and price of oil, and would build on the vital Israel interest in cheaper oil to maintain Israel's security. A new policy would acknowledge the Shah's mistake in rapid modernization and support a renewed Saudi emphasis on traditional religious values to counter the internal threat from religious fundamentalists. A new policy would stop pushing the most advanced arms onto a Saudi society too poorly manned to operate them and would encourage the royal family to strengthen the National Guard rather than expanding the Army and especially the Air Force. A new policy would support a substantial cutback in unneeded industrialization.

The savings in unnecessary defense and industrialization expenditures would be enormous and would more than make up the reduction of crude oil revenues. (If the price of Saudi oil fell to one-third of the present $26 per barrel, while production was doubled, total revenues would only decrease by a third. In 1970, the same barrel, which costs under 25 cents to produce, sold for $1.35.)

A new US Mideast policy would permit the President confidently to invite to a Camp David II summit meeting the leaders of Saudi Arabia, Israel, Egypt, and Jordan as well as leaders of the West Bank and Gaza Palestinians. A realizable peace settlement would include a Saudi obligation to double oil production and free-market it.In return for the resulting cheaper oil, Israel would agree to a nonmilitarized independent Palentinian state on the populated portion of the West Bank and in Gaza with the right to return to evacuated areas if the Palestinian state arms or condones terrorism. Israel would also agree that sovereignty over an undivided Jerusalem was negotiable after 15 years of real peace, and all sovereignty claims would be frozen. But the Saudis would get immediate guardianship of the Islamic holy sites. The Israeli settleemnts would be internationalized as part of an international duty-free trade area including the Palestinian state and a buffer area along the Egypt-Israel border.

A treaty alliance would guarantee the peace and protect the oil and oil routes with permanent US-leased air and naval bases in the Sinai and Oman. The Saudi F-15s would be in American hands with their role to include defending the House of Saud against any Saudi Air Force coup attempt.

Applicable principles would also govern Israeli peace settlements with Syria and Lebanon.