Oil Squeeze

Ripples from Iran

With this winter's sudden spate of gasoline shortages now beginning to disappear, can motorists count on a hassle-free spring and summer on the highway? Hardly. By Memorial Day or shortly thereafter, shortages may start appearing all over again.

The problem this time is the Iranian oil shutoff. At first, U.S. officials dismissed the Iranian oilfield strike as a temporary phenomenon of no great consequence. But the strike has been dragging on since late October, and for the last month virtually no crude at all has been pumped out of the ground. Last week, in fact, the U.S. faced the bizarre situation of having to rush an emergency shipment of 200,000 barrels of diesel fuel and gasoline to Iran because local refinery output is insufficient to meet domestic needs.

Washington brows are beginning to furrow at the prospect that the U.S. might wind up with not even enough oil for itself, let alone anyone else. The nation depends on Iran for only about 5% of its petroleum needs, but other countries are nowhere near so lucky. Worldwide, Iran normally supplies about 20% of the total petroleum imports of all the consuming nations. Japan usually relies on Iran for 15% of its needs, and Western Europe generally is heavily dependent on Iranian oil, as is Israel, whose oil needs the U.S. has pledged to fulfill in the event of shortages. If the flow of Iranian oil remains stopped up for very long, the industrial nations will have to begin sharing the still available supplies. If that happens, the U.S. could suffer much more than a 5% drop in its normal supply and availability of crude.

So far, Saudi Arabia has helped to make up for the loss of Iran's oil by boosting its own output nearly 30% to some 10.3 million bbl. a day, close to the maximum that it is presently possible to pump from the Saudi fields. Iraq, Nigeria and Kuwait have also increased production somewhat. Right now, total world production is off by about 2 million bbl. a day. That is roughly equal to about 4% of global petroleum consumption, or more than enough to supply all the daily needs of Britain or Canada.

The oil companies are presently filling the gap by drawing upon their inventories, but that cannot continue for long. Even if all of Iran's striking oilworkers were to go back to their jobs this week, it could take as long as six months to bring the country's production back to an acceptable level. Oilmen actually say that if shortages of gasoline and other refined products are to be prevented from developing later this spring, the Iranian fields must start coming back on stream in the next six to eight weeks—a highly questionable prospect, given the country's political situation.

Occasional gasoline shortages this summer would merely foreshadow inevitable and worse dislocations next winter. Usually, the oil companies draw down their inventories steeply during the winter months anyway, then use the spring and summer to replenish their stocks. But U.S. inventories are already 10% below what they were this time last winter; they now stand at some 298 million bbl., or about a one-month supply. So if Iran's production is not resumed soon, says Energy Secretary James Schlesinger, "we would face much larger drawdowns next winter than we will have the resources to maintain."

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