nytimes.com 24/12/1973 History

Keywords:#Abu_Dhabi, #Algeria, #Arab, #Arabia, #Basic, #Communist, #Ecuador, #Europe, #Farsi, #French, #Gabon, #Government, #Indonesia, #Iran, #Iranian, #Iraq, #Israel, #January, #Japan, #Kuwait, #Libya, #Middle_East, #Minister_of_Finance, #Niavaran, #Nigeria, #Nytimes.com, #Organization_of_Petroleum_Exporting_Countries, #Persian, #Persian_Gulf, #Persian_Gulf_states, #Qatar, #Saudi, #Saudi_Arabia, #Shah, #United_States, #Venezuela, #Western

TEHERAN, Iran, Dec. 23—A sharp increase in the price of Persian Gulf crude oil effective Jan. 1 was announced here today.
The measures, which double the price of a barrel of oil, were disclosed after a two‐day meeting of ministers from the six gulf states that provide about 43 per cent of the nonCommunist world's petroleum.
Posted prices, today's announcement said, will reach about $11.65 a barrel. Just two months ago the ministers unilaterally raised the price for a barrel of crude oil by 70 per cent to $5.11. Less than three years ago the posted price for a barrel of oil on the Persian Gulf was $1.80.
Expert ‘Appalled’
One Western oil expert said tonight: “I'm shocked and appalled. We did not expect it to go this high. The United States will tough it out but it's really going to hit Europe. There's going to be severe economic consequences.”
Another predicted that the cost of United States oil imports may climb as high as $8‐billion next year because of the price increase, from the present level of about $2.5‐billion a year. Most oil exporting nations are expected to follow the lead of the Gulf nations.
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The “posted” price of a barrel of oil is, in the words of experts, a “legal fiction” that has endured for years. No oil is actually paid for at the quoted level.
Essentially, the posted price is the figure commonly used by oil‐producing nations to calculate tax and royalty payments due from the Western companies who do the actual production work.
The posted level may reach anywhere from 40 to 60 per cent above the Government take.
Government Take
The Government take under the new price system, starting Jan. 1, will be $7 for one barrel of oil. At present, a barrel costs about $3.09. These represent, in a sense, the “real” value of the oil.
Officials here expected posted prices to reach about $9, but some Western oil experts tonight were really jolted at the $11.65 figure. “This price is a hell of a rough one,” a knowledgeable source said.
Europe depends on the Middie East for 73 per cent of its oil imports. Japan depends upon the Arab nations and Iran for 8$ per cent of her petroleum needs. This year, about 15 per cent of the oil consumed in the United States came from the Middle East, and the percentage has been rising in recent years.
One expert said tonight that in 1972 the Persian Gulf nations earned about $16‐billion from oil. Next year, when the new prices begin, earnings of the gulf nations could reach as high as $60‐billion.
The gulf states are Iran, Iraq, Kuwait, Saudi Arabia, Qatar and Abu Dhabi. The group, meeting privately to set oil prices, are members of the powerful Organization of Petroleum Exporting Countries. Other members of O.P.E.C., founded in 1950 as a bargaining merit for oil producers, are Algeria, Indonesia, Ecuador, Libya, Nigeria, Venezuela and Gabon. The organization's members provide 85 per cent of the world's oil exports.
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At a news conference today in the Niavaran Palace, north of Teheran, Shah Mohammed Riza Pahlevi, observed: “The industrial world will have to realize that the era of their terrific progress and even more terrific income and wealth based on cheap oil is finished.”
The 54‐year‐old Iranian leader added in a soft voice: “They Will have to find new sources of energy, tighten their belts. If you want to live as well as now, you'll have to work for it.
“Even all the chidren of wellto‐do parents who have plenty to eat, have cars, and are running around as terrorists throwing bombs here and there —they will have to work, too.”
Meetings Scheduled
The Shah, at his news conference this morning, said that a full meeting of O.P.E.C. would be held on Jan. 7 to discuss the price policy adopted by the six gulf states.
Following this, the oil nations will chart out a strategy for a meeting with the 24‐member Organization for Economic Cooperation and Development, which groups major industrial nations of the non‐Communist world.
Members of the O.E.C.D. provide a sizable part of the market for oil producers. The meeting, then, will probably serve as the first face‐to‐face confrontation between the oilexporting nations and developed countries already in the grip of economic distress made worse by abrupt oil‐price rises as well as the current oil cutback and selective embargo aimed at politically isolating Israel.
Three Basic Points
The Shah, speaking alternately to journalists in English, French and Farsi, made three fundamental points at his conference.
One was that a coherent price structure for oil must be found and that “you just can't blindly put your finger on a figure.”
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Another was, essentially, that alternative forms of energy must be developed and serve as a basis for setting oil prices. “We must base this thing on a new concept,” he said. “We must compare the price of oil to the other sources of energy —what is the real price for the extraction of shale, the extraction of gas, the liquification of coal?
“The price should be the minimum that you would have to pay to get shale, for example, or the liquification of gas or coal.”
“How much it costs you to exploit these other sources should be a basis for the cost of oil,” said the Shah.
His third point was that “a new equilibrium,” was emerging among rich nations, those rapidly turning wealthy and the poor. He mentioned the possibility of the development of an international bank or fund, partly financed by the oilproducing countries, to assist poorer ones in mining, exploration and seeking out iron ore.
“The role will have to be taken up by the new wealthy oil countries,” said the Shah, adding, “We don't want to hurt at all the industrialized world. We will be one of them soon, What good will it do if the present industrialized world is crushed and terminated? What will replace it?”
Venezuelan Expectations
CARACAS, Venezuela, Dec. 123 (UPI)—Venezuelan oil prices will soar to over $10 a barrel next month in line with the doubling of crude‐oil prices announced by Persian Gulf states, industry sources predicted here today.
Venezuela ships almost 1.7 million barrels of oil to the United States daily. Venezuelan Government spokesmen had earlier speculated that January oil prices would go as high as $10 per barrel.
Luis Enrique Oberto, Minister of Finance, said today that while Government technicians had already decided on a tentative increase in prices for January, the increase could be considerably larger if gulf producers announced a major hike, as they did in Teheran today..
In October, when gulf crude prices were hiked by around 70 per cent to $5.11 per barrel, Venezuela increased its prices by an average $2.35 for November and followed up with a 50‐cent average Increase for December. Since the beginning of the year, Venezuela has hiked its prices 11 times and will take in about $2.7‐billion from oil this year.
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