46 growth of the Indian domestic oil market. The required surrender in September 1961 of the tax exemptions enjoyed by the companies since about 1954 reportedly involved a cut in their combined incomes of about $31.5 million.47 While the Indian Minister of State for Mines and Oil insisted that there was no thought of "squeezing out" private oil interests or of nationalizing the Indian oil industry, 48 he declared it to be the purpose of the Government to continue its purchase of Russian oil "more vigorously," to pursue a socialistic policy in which the Government would "control mineral oil in its various aspects," and to "reserve expansion opportunities for the public sector. All in all, the outlook for Western oil interests in India can only be described as grim. Ceylon 77 49 A Soviet offer to supply oil at prices 25 percent below the current market rate with willingness to accept Ceylon rupees on 6 months' credit in payment 50 upset a longstanding arrangement by which American and British companies attended to Ceylon's oil needs. On December 13, 1960, a Ceylon Petroleum Corp. bill was introduced in the Ceylonese Parliament. This provided for the creation of a taxexempt, state-owned corporation empowered to import, sell, and distribute oil, fix prices, and acquire or requisition any property required for such purposes. This was aimed particularly at the Shell Co., which previously controlled 60 percent of the country's oil trade, and at Standard-Vacuum and Caltex, which controlled 20 percent each. Notwithstanding strong protests by both the United States and British Governments, the bill was passed and became effective on June 1, 1961. Ceylon meanwhile had engaged to buy 40,000 tons (300,000 barrels) annually of Soviet bloc oil, a contract subsequently raised to 1.25 million tons (9.375 million barrels) over a 5-year period.51 The companies were prevented from retaliating with price cuts by the Government's plans for taking over their physical assets without any arrangement as to compensation or right of appeal.52 At the beginning of May 1962, the state-owned Ceylon Petroleum Corp. appropriated 108 of the 175 gasoline filling stations owned by the three Western oil companies, which in the future will be used to distribute low-cost fuel shipped from the Soviet Union, Rumania, and the United Arab Republic and which Ceylon will pay for on a barter basis.53 "In 6 months," said the Ceylonese Minister of Commerce early in 1961, "all vestiges of capitalism" will have been rooted out of Ceylon." As the first shipments of Russian oil reached Ceylon in March 1962,55 the companies were hard put to discern any prospect for a profitable future sphere of operations in that country. "This is really an economic war between East and West," said the managing director of Caltex, "and it's gone far beyond the point of private companies' being able to fight it on their own." 56 45 Journal of Commerce, Apr. 18, 1961. 54 Washington Post, Sept. 28, 1961; New York Times, Sept. 28, 1961; Journal of Commerce, Sept. 29, 1961. Journal of Commerce, Dec. 4, 1961. Journal of Commerce, Apr. 18, 1961, July 5, 1961, Aug. 30, 1961. New York Times, Jan. 13, 1961. "Washington Post, Mar. 12, 1961; New York Times, Dec. 24, 1961; Journal of Commerce, Jan. 15, 1962; Petroleum Press Service, vol. 29 (April 1962), p. 155. 52 Economist, vol. 198, Jan. 21, 1961, p. 275. Washington Post, May 14, 1962. 44 Economist, vol. 198, op. cit. 1 Petroleum Press Service, vol. 29, op. cit. "Washington Post, May 14, 1962, op. cit. Japan Soviet oil has posed problems of a different kind in Japan. Being a highly industrialized country with the world's most rapidly expanding market,57 Japan has an annual oil demand (above its own inconsiderable production) of about 220 million barrels (1961). For many years Japan's oil needs have been supplied principally by Japanese firms associated with the major international oil companies.58 Recently the Japanese Arabian Oil Co. has supplemented these sources with its own production in the Persian Gulf. Rapidly increasing Japanese oil consumption-143 million barrels in 1960, about 240 million barrels in 1961 59 coinciding with greatly increased Soviet oil production-provided background for a Soviet drive to find in Japan an important outlet for its growing oil industry. A JapaneseSoviet 3-year trade agreement concluded in 1959 provided for Soviet oil imports to the minimum extent of about 7.5 million barrels in 1960, again in 1961, and about 8.5 million barrels in 1962. In August 1961, Anastas Mikoyan, Soviet First Deputy Premier, visited Japan hoping to arrange for a long-term enlarged trade agreement. Specifically he proposed that this envisage Japanese manufacture of oil pipeline for the completion of the Soviet trunkline from Irkutsk to the port of Nakhoda, near Vladivostok, whence Japanese oil needs to the extent of some 90 million barrels per year could be supplied at greatly reduced prices.60 The prospect of being able to obtain oil at prices 30 percent below those prevailing on the Japanese market proved attractive to a number of the smaller Japanese oil firms as offering some insurance for survival in competition with the great companies.61 For_other reasons it appealed also to the largest oil importer, Idemitsu Kosan, which firm in 1961 raised its import of Soviet oil from 30,000 tons (225,000 barrels) to a total of 6 million tons (45 million barrels) over a period of 6 years-one-third of its total oil purchases.62 At this point, the U.S. Government canceled the arrangement with the Idemitsu Kosan firm by which it had been purchasing about 600,000 barrels annually of jet fuel for U.S. forces in the Far East. It cited as reasons for the action (1): That Soviet oil was being offered with political objectives in mind and hence was not really competitive; (2) that Japan would be unwise to place much reliance on Soviet oil as an energy source in view of East-West tensions; and (3) that inroads of Soviet oil would make almost impossible the maintenance of stable prices for Japanese domestic petroleum products.63 This action by the United States, together with other influences, brought the Japanese Government to the point of considering legislation which could restrict imports of Soviet oil. Among the other influences were the facts that Russian crude oil, being relatively light, was not well suited for a market calling mostly for fuel oils and that most Japanese oil importers were well satisfied with their long-term supply arrangements with the major Western oil companies. A legislative bill, designed to give the public authorities direct control of oil imports, was presented to the Petroleum Press Service, vol. 29, op. cit., p. 109 (March 1962). 59 Journal of Commerce, Apr. 11, 1961. 59 Petroleum Press Service, vol. 29, op. cit., p. 53 (February 1962). 60 Petroleum Press Service, vol. 28 (September 1961), p. 347. 61 Journal of Commerce, Aug. 15, 1961, Oct. 18, 1961, Nov. 2, 1961. 62 New York Times, Dec. 23, 1961; Washington Post, Dec. 22, 1961. 63 Journal of Commerce, Dec. 28, 1961. 4 Petroleum Press Service, vol. 28 (September 1961), p. 347. Japanese Diet in January 1962.65 Soviet hopes for taking over a lion's share of the Japanese oil market consequently did not appear to be very bright at that period. In its persistent campaign to extend Soviet influence into areas outside of the Communist bloc, the U.S.S.R. has not been myopic. Since its interests and ambitions are worldwide, it has had to experiment with a variety of techniques calculated to establish confidence and gain good will-all of them specialized features of a comprehensive trade and aid program. Since energy needs are universal, the Soviet regime has found petroleum, with which it is amply supplied, to be in many instances the most useful of the means available for advancing its interests. Although its best customers for oil or oil products have been the states of industrialized Europe, as will be noted further, more immediate profits have been gained, it would appear, in emerging but yet underdeveloped countries. Ceylon is an illustrative case in point. Others are to be found in Africa and Latin America. Africa and Latin America 66 While Western oil companies have figured prominently in oil operations in many parts of the African Continent and have taken the lead in developing the oil resources of Libya, Tunisia, and the Algerian Sahara, the Soviet Union has made some headway in other areas. The U.S.S.R. is reported to be building a refinery for Ethiopia at the port of Assab, for example.67 It has been supplying crude or oil products to Algeria, Morocco, Guinea, and Ghana.68 Beyond definite reporting at the present time is the extent, if any, to which the Soviet has a stake in the extensive African operations of the Italian fuel trust, ENI, beyond supplying much of the petroleum used by that remarkable organization in its foreign operations including a variety of activities in not less than 10 African countries.69 Down to the present, despite the expenditure of considerable effort over the past 3 or 4 years, the Soviet Union appears to have found most of Latin America a relatively sterile area from the point of view of economic penetration. Offers of petroleum and oil products at prices far below those obtaining in the international market have resulted in a few import contracts on a short-term basis, but except in Cuba, which represents a special case it is not clear that much ground has been gained. Some of the obstacles confronting the U.S.S.R. in this area are obvious. Certain of the Latin American countries-Mexico, Venezuela, and, for the time being, Argentinaare self-sufficient in oil.70 Venezuela, to be sure, could supply the whole of the continent except for its pricing policy. U.S. political influence has been a restraining factor in a number of countries. At present, Brazil's ideological inclination is rather uncertain and its trade relations with the U.S.S.R. are suggestive of indecision. Although Brazil's state-owned oil company, Petrobras, S.A., has reported that Brazil is self-sufficient in refined oil products," that state in 1959 imported 59,400 metric tons of Soviet crude oil; in 1960, 35,300 tons #Petroleum Press Service (January 1962), pp. 26-27; Journal of Commerce, Dec. 28, 1961. New York Times, Jan. 14, 1962. Petroleum Press Service, vol. 28 (December 1961), p. 466. Christian Science Monitor, Jan. 18, 1961, Dec. 27, 1961, Apr. 16, 1962; Journal of Commerce, Dec. 1, 1961; U.S. News & World Report, Apr. 17, 1961, pp. 74-77; New York Times, Jan. 24, 1961. New York Times, Jan. 10, 1962, Mar. 18, 1962; Petroleum Press Service, vol. 29 (April 1962), op. cit., pp. 133-136. New York Times, Mar. 16, 1962. of Soviet crude and 126,000 tons of oil products." In June 1961 it contracted for 610,000 tons of Soviet crude and diesel oil on a barter basis. In May 1962 it agreed to look forward to a doubling of the existing level of trade of all kinds with the U.S.S.R., oil imports to figure in this increased trade. A contest was developing meanwhile between the Soviet Union and the United States over the source of the aid required for the exploitation of Brazil's extensive oil shale deposits, with the outcome still in doubt. 74 Elsewhere in South America the U.S.S.R. has met with indifferent success in its overtures. Bolivia, whose oil industry has been declining, refused a Russian credit of $150 million, first offered in October 1960, to finance purchases of machinery for oil and tin production." All essential aid for such purposes has been supplied from free world sources.76 Chile's Finance Ministry indicated a willingness early in 1962 to accept Russian aid in the building of an oil refinery if the U.S.S.R. would accept Chile's copper and certain manufactures in exchange." Basis for penetration OIL OFFENSIVE IN EUROPE Russian oil exports to countries in Europe began years before the opening of World War II when a cold war of present dimensions could not have been imagined. While these contracts were interrupted by the late war, it was not unnatural that they were resumed on the basis of bilateral trade agreements once Soviet oil production had reached the stage where not all of it was required for the building up of Soviet industry. At the same time it should be noted that, while Soviet oil exports in late years have been only one feature of a much larger total export to non-Communist countries in Europe, 78 it is only as the U.S.S.R.'s proved oil reserves and rapidly mounting production made possible the use of oil as a political instrument by flooding the market and greatly undercutting the price structure of the major oil companies that Soviet oil came to be recognized as a menace. A number of non-Communist European states have taken the view that, considering the needs of their economies and the price differential in favor of Soviet oil, they can ill afford to close out their trade relations with the U.S.S.R. as long as there appears to be no danger of being drawn into the Soviet political system. Thus they have continued to rely largely-in some instances entirely-on Soviet oil or oil products with the likelihood that price factors may be even more favorable once the Soviet oil pipeline system has been completed. In tabular views, the acceptance of Soviet oil and oil products in various countries of Europe in very recent years appears below (pp. 15, 16). Italy Italy's imports of Russian oil, which are substantially greater than those of any other European country, present some serious problems to the non-Communist world. It should be noted, by way of back 72 Petroleum Press Service, December 1961, p. 466. 73 New York Times, May 8, 1962. New York Times, May 11, 1961, Mar. 18, 1962; Congressional Record (Senate), Apr. 16, 1962, pp. 6074-6075. 75 London Times, Dec. 21, 1961. 76 Petroleum Press Service, vol. 29 (January 1962), p. 19. 77 Journal of Commerce, Feb. 27, 1962. 78 See "Trading With the Communist Bloc," Petroleum Press Service, vol. 29 (March 1962), pp. 81–84. ground, that until very recent years Italy's needs for oil fuels were supplied largely by the international oil companies operating in the Middle East. The companies' operations in Italy included the construction of refineries and the development of distribution facilities for the local marketing of oil products throughout the country. This sphere of company operations is being restricted step by step, owing to measures taken by a corporate arm of the state itself. With oil and gas from Italy's domestic fields and extensive petroleum imports from the U.S.S.R., this agency, a corporation called Ente Nazionale Idrocarburi (ENI), a state-owned fuel trust now embracing some 75 other corporate bodies operating in many fields,79 is in process of eliminating such foreign business enterprise within Italy as may profitably be displaced. ENI, moreover, has become a principal channel through which Soviet oil, often in camouflaged form, is distributed elsewhere in Europe and the non-Communist world. The founder, enlivening spirit and master of this business empire is one Enrico Mattei-an outstanding man of the age, whether regarded as evil genius or patriot. Having been authorized by his government at the close of World War II to liquidate the remnants of the Fascist Italian Petroleum Agency, he proceeded to use the agency's assets as a nucleus for new state-controlled enterprises.80 As his capital resources increased, he set about supplying the domestic market exclusively through Italian channels aiming eventually to eliminate the middleman between oil producing and consuming countries as far as his operations might reach.81 As a matter of fact, no limit has been set to these operations. From successful operations in Egypt, whence Western oil interests had largely withdrawn, Mattei has made every effort to enter the newer fields and newer countries elsewhere in Africa. In 1957 he obtained three concessions in Iran covering an exploration area of 8,800 square miles, noteworthy because the terms assigned to Iran 75 percent of any marketing profits that might follow-terms which oil companies already on the scene. will be required to meet. These appeared to be normal competitive activities. The international community took a very different view, however, of a trade agreement signed in October 1960 between the Soviet and Italian Governments providing for Italy's importation of substantial quantities of Soviet oil in the ensuing 5 years. This contract, amended in March 1961 to raise the import quota,82 was essentially a barter arrangement whereby, in return for some 30 million barrels annually of Soviet oil, Italy would supply large-diameter oil pipe, pumps, etc., to be used in completing the main Soviet oil pipeline into Eastern Europe. Inasmuch as production from Italy's domestic oil and gas fields has gone far toward meeting the country's fuel needs, these contracts created a wave of apprehension in government and business circles in various Western countries since they could only mean a further intrusion of Soviet oil into a market already oversupplied and 83 Journal of Commerce, Dec. 1, 1961. Enrico Mattel, "ENI Operates Worldwide," in World Petroleum, vol. 32 (February 1961), pp. 37-40. New York Times, Nov. 28, 1958; Economist, vol. 197 (Nov. 5, 1960), The Oil and Gas Journal, vol. 59 (Dec. 25, 1961), p. 145. p. 572. New York Times, Nov. 11, 1960; Journal of Commerce, Nov. 14, 15, 1960; Washington Post, Dec. 25, 1960; Christian Science Monitor, Nov. 25, 1960, Mar. 16, 1961. Economist, vol. 197 (Nov. 5, 1960), p. 572; New York Times, Nov. 11, 1960; Journal of Commerce, Nov. 14, 15, 1960; London Times, May 24, 1961. Ernesto De Marchi in Orbis, vol. 5 (winter 1962), p. 421. |