Monday, Aug. 29, 1960

Flow from the East

Into Bombay Harbor last week steamed the Soviet tanker Uzhgorod, loaded with 11,000 tons of high-speed diesel fuel—and with bad news for the West. The Uzhgorod carried the first installment in a 3½-year deal under which India will buy 1,500,000 tons of Russian petroleum products, pay for them in rupees instead of the valuable foreign exchange demanded by Western oil companies. The tanker's arrival marked a milestone in Russia's mounting offensive to drive Western oil companies out of their traditional overseas markets, came just as the battle forced Western firms to cut their prices to meet Russian competition. Items: ¶Four major Middle East oil producers —British Petroleum, Shell, Mobil, and the Compagnie Franchise des Petroles—cut their posted crude-oil prices, following the lead of Esso Export Corp. ¶Under pressure from price cuts in India (TIME, Aug. 22), British and U.S. companies reduced bulk prices on petroleum products in Pakistan by an average 7%. ¶Ceylon's Prime Minister Mrs. Sirimavo Bandaranaike, not to be left out, summoned three Western oil companies in Colombo to a meeting at which the government will ask for further price reductions on gasoline, on top of a recent gas price cut.

With the oil industry in the midst of a major world oil glut, the new Mideast posted price cuts will probably not be the last. Actually, they are only about half the 30¢-per-bbl. discount that Western oil companies have been offering some customers. Since oil royalties to Arab nations are paid on the posted price, companies that discount have been paying the usual royalties but receiving less for the oil they sell.

If the posted cuts temporarily satisfy Asian buyer,, they have set off a violent reaction in the Middle East, where Arab government revenues flow from oil royalties. Although Mideast production is up 13% this year, the Arab nations expect heavy revenue losses from the cuts; Iraq says it will lose about $20 million, and Kuwait, Saudi Arabia and Iran, being bigger producers, will lose even more. Cried Sheik Abdullah Tariki, Saudi Arabian director of petroleum and mineral affairs: "It is a plot by the oil companies, not even remotely justified by the Russian challenge." When the Arab Petroleum Congress meets in Beirut in October, it is expected to press for a bigger share of the profits, move ahead with its own program to expand pipelines, build refineries, operate a tanker fleet.

Such countries as India and Pakistan, anxious to build their own oil industries to save themselves valuable dollar ex change, are not above using the Russians to pry new concessions from Western firms. Pakistan has given tentative approval to Soviet technicians to develop its mineral resources, particularly oil, and the Russians are expected to offer the Pakistanis the same deal for petroleum products that they offered India, make a bid to build an oil refinery.

Also harming Western oil companies in India and Pakistan is a widespread belief in both countries that the oil companies do not really want to find oil because success would cut off shipments from their other fields. The companies vigorously deny the charge, but they recently got a bad break. After Stanvac had drilled for oil for three years around Calcutta without success, the Indians allowed the Russians to drill on the west coast 900 miles away. The Russians struck oil. If they should find oil in commercial quantities in India and Pakistan, they would have a strong propaganda wedge against Western companies.