Despite surge in Persian Gulf attacks, oil supplies look secure
As the industrial world grows more dependent on oil from the conflict-ridden Persian Gulf, energy security is again worrying the West. An increase in Iranian attacks on oil tankers, along with a continuing level of Iraqi attacks, is raising the possibility of US and/or Soviet military involvement in the Gulf. But oil analysts say oil supplies remain safe despite the attacks.
Nearly two-thirds of the known oil reserves in the world are in the Persian Gulf. Secure shipping of crude along the 500-mile gantlet of the Gulf and through the Strait of Hormuz is crucial to oil exporters and importers - especially those in the United States, Japan, and Western Europe, which are buying increasing amounts of cheap oil from this region.
But last week, Japanese tanker owners suspended tanker movements to and from Kuwait after two Japanese tankers were attacked by Iranian missiles in 24 hours. And on May 6, a Soviet freighter, the Ivan Koroteyev, came under rocket and machine-gun fire from what were presumed to be Iranian launches in the Gulf.
The United States and the Soviet Union are sending warships into the Gulf to deter Iranian attacks. Ships flying US and Soviet flags soon will be in harm's way. Three Soviet tankers were chartered by Kuwait last month. The US has agreed to register 11 Kuwaiti ships under US flag.
But although tankers are constantly under threat, the oil supplies from this region remain fairly safe, points out Hossein Tahmassebi, chief economist at Ashland Oil in Ashland, Ky.
Around 4 million barrels a day are pumped out of the region across Saudi Arabia to the port of Yanbu on the Red Sea or via pipeline through Turkey to the Mediterranean. Thousands of barrels are trucked out of the region to Jordan, too.
And although the attacks on tankers have become more threatening due to the stationing of Iranian missiles near the strait, upwards of 100 tankers ply the Gulf waters unharmed each day.
Moreover, supplies of oil in the world remain quite adequate. Dr. Tahmassebi says the Organization of Petroleum Exporting Countries alone has up to 15 million barrels a day of unused capacity today, and oil demand is growing at only 1 percent a year, at most.
In the event of a supply interdiction in the Persian Gulf, oil nations elsewhere would be only too happy to crank up production, especially at higher prices. The 90-day oil supply contained in the strategic petroleum reserve of the US, Japan, and European nations provides an additional buffer.
This is one reason why Bijan Mossavar-Rahmani, assistant director of international energy studies at Harvard University, sees a hidden agenda in the recent Kuwaiti calls for help.
Because Iranian forces have advanced onto the Fao peninsula in southern Iraq, Kuwait feels increasingly threatened. Dr. Mossavar-Rahmani thinks the Kuwaitis are trying to drag the superpowers into the conflict in order either to hold Iran at bay or to broker a settlement to the 6-year-old war.
Meanwhile, with the Iran-contra affair having damaged US relations in the region, Washington is striving to show Gulf Arab nations that the US is their friend.
``I think the US motivation is to undo problems that were a result of `Irangate,''' says Henry Schuler, head of the energy security program of the Georgetown Center for Strategic and International Studies. ``It may also be legitimate to bolster the Kuwaitis and give them some backstop so they won't be intimidated. But it's driven by a desire to offset the Iranian arms sales.''
Mr. Schuler is concerned that putting Kuwaiti vessels under US flag is a ``contrivance.'' And, referring to the continuing Iraqi attacks, he notes, ``If the major concern is the security of oil supplies, regardless of source, then we should be evenhanded.''
As part of that show of support to the Arab bloc, US Assistant Secretary of State Richard Murphy has been visiting the region. He is the highest level US official to go to the Gulf since the Iran-contra affair broke.
Another means of support is the US's quiet backing of the $18 a barrel price of oil rather than insisting, as it did last year, that only the free market should determine the price. But the US still stops short of endorsing the price-fixing of OPEC.
Energy Secretary John Herrington told ministers at an International Energy Agency (IEA) conference in Paris earlier this week: ``While we continue to value constructive bilateral contacts with producers, we are firmly opposed to multilateral producer-consumer discussions which would inevitably lead to discussion of oil prices and production levels and misguided efforts aimed at stabilization.''
But both the Reagan administration and oil nations agree on one thing: They don't want the oil tariff that congressional committees have been considering. Higher prices brought on by a tariff would make OPEC oil less attractive and would lead to higher US oil production, notes Dr. Tahmassebi. It might also set off tariffs in Europe and Japan.
This is why Saudi oil minister Hisham Nazer on a recent visit to the US indicated oil prices could reach $22 a barrel by the end of the year. That would make oil regions of the US happy and slow the drive for a tariff. If prices indeed rise, that would ease US dependence on Mideast crude and be more politically acceptable in the US from an energy security point of view.
But is $22 a barrel sustainable? Not with all that excess capacity, says Tahmessebi. ``It could be 10 years before we see tightness in the market again.''
Nonetheless, dependence on Persian Gulf region oil will increase, according to the IEA. Western nations will get 40 percent of their total crude from OPEC, the IEA says. This is expected to rise to 50 percent by the year 2000 as non-OPEC oil sources dry up.