THE IMPORTANCE OF IRANIAN AND MIDDLE EAST OIL TO WESTERN EUROPE UNDER PE ACETIM

Created: 1/8/1951

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DISTRIBUTION (NIBffice of U*sttoculOo-*oetJ Hittonal Seewtly Xtseuresa Boudof State Offlea of Secretary ol Defenseha Amy Dtptrtraenl ofjof the airook EMiSJ OomiBlMloQ

joint chiefs or esufi

Bursabmtlf atlee Research and DevtlDsweent Beard

NATIONAL INTELLIGENCE ESTIMATE

THE IMPORTANCE OF ffiANlAN AND MIDDLE EAST OIL TO WESTERN EUROPE UNDER PEACETIME CONDITIONS

1 4

This estimate has been prepared In responseqvaX from the Senior Slaff ol ihe National Security Council. The basic data were eupplled by an taterdepartmeotal ud Hoc cornmlllee ol technical representatives of ECA. the Petroleum Committee of the KunlUons Board, the Dep*rtmenU of the Treasury, Commerce, and State, and CIA. The Intelligence organisations of the Departments of State, the Army, the Navy, the Air Force, and the Jointpartlrtfated In the preparation of. this estimate and concur in It This paper Is based on information available on SO Decesober IMO.

ASSUMPTIONS

That access to (a) Iranian oil production, and (b) total Middle East oil production is denied to the Western Powers bj means other than war.

THE PROBLEM

To estimate the importance ol (a) Iranian oil productionotal Middle Bast oil production to Western Europe in time of peace.

CONCLUSIONS

The amount of crude oil and refinednow exported from Iran could be derived from other areas try small Increases In crude production and by fuller use of available re-flnlnf capacity. At the rates of consumption end levels of prices prevailing at the endhe extra annual dollar charge to Europe of procuring this amount of oil elsewhere would be

2 Loss of Iranian oil production and of the refinery at Abadan would temporarily have an adverse effect upon Western Europeanactivity, and would impose severelosses particularly upon the British, who control all the oU production of the country. Although the effect of the loss of Iran on the volume of petroleum which could be made available to Western Europe might be over-

Plsnm in this paper itprmoUoc estlmaWadollar eosls and of the extent efhottasts which would wJioss or Iranian Of Middle Eastern oil ui Indicative rathir than exact. They Mil boM true0ons as Oliuj at ihe. levels ol law irSO. and oQ wc<*eUon and eoniumpUoo cooUooc at the rates camet^ estimated for tfe fiscal year IHO-M. ThetamasuM proframs in thend in Western Europe wO presumably be to raise the eeeurampUoo ol cO. asai probably to rain lis price. Tbeve faefcxs would lend to asUe It*f the Middle Fart more In.portanlhe western economlsa, and to taw |ta tot* to be aven more merelyndicated by the flsuro cited In this paper.

corn*elatively short time by developing reserves and building refineries elsewhere, the financial effects wo'ild be overcome slowly, if at all.

If all Middle East oil production wereeutback of aboutercent In the total oil consumption of the non-SovM world would have to be Imposed, evenum practicable Increase of production from otherhis would call for substantial rationing In the United States as well asInternational allocation would beAt the price level ofet Increase In dollar requirement* of fromillion would occur If Western Europe,utback ofercent In Itswere to procure from alternative aource* an amount of oil sufficient to make up for 'he ksu or Middle East import*.

It Is estimated thatutbackrom present levels of oil consumption were imposed on Western Europe, it would permit maintenance of Industrial production at approximately the levels ofnd of transportation at the extreme minimum necessary for that purposa. No appreciable expansion of Industry, whether for normal economic development or for rearmament, would be possible, unlets economies wereexpansion of Industry and UaniporU-tii.ii faculties were accomplished only with solid fuel-utlllilng equlprntut, and possibly

some conversion ol existing petroleum-using equipment were made. Rationing even toconsumption byercent wouldgreat difficulties In time of peace.

8 Ko wsy can be foreseen at present byatisfactory adjustment,onger period of time, could be made to the total loss of Middle East oil, unless new reser.es are proved elsewhere, or new sources of energy developed. Western Europe therefore would not be able to compensate for the loss of Middle East oil save by profound changes In Its currently planned economic structure.

TuUl petroleum requirements of Western Europe (Including the UK) for the fiscalre estimated atillion metric tons, of whichillion will be Imported as crude andillion as refined products; theillion tons will be derived from indigenous sources. Of the totalillion metricercent, will come from the Middle East. In addlUon, International bunkersillion tons and US military supplies sggre-gatingillion metric tons will be lifted In the Middle East area.

f the total requirements of Westernit is estimated that Iran alone will supply the following:

MtUioni of Metric Torn

Percent of

Cred*Reoa ttmtnti

Refined Producfs

including British Military) imkers

.

t Is estimated likewise that of totalEuropean requirements, the entire Middle East area will supply the following:

e

* PercentRequ trtmenti

Refined Producti

Banter t

LOSS OF IRANIAN PRODUCTIONf Iranian oil should cease to be available, the seven mill loo metric tons of crude oil by which Western Europe would thereby fall short (according tostimates)

could be more than made up by Increasing the output of British companies operatingIn the world Indeed It could all be replaced, at some additional dollar cost, from the other producing areas of the Middle East Replacement for the balance of Iran's crude oil output (that processed at Abadan) could also be obtained outside the Soviet sphere by releasing shut-in production and by more rapid drilling of known reserves.oss of the Abadan refinery, with Itsofillion metric tons per year, would call for much more difficult adjustments than would the loss of Iranian crude oil output. There Is now in the non-Soviet world, outside Iran, enough refining capacity to process an additional amount of crude equal to that now going through the Abadan plant. If Abadan were lost, however, at least six months would be required to place marginal plants into change the composition of refinery output, to alter tanker routings, and tothe redistribution of crude oil among the other refineries.

To acquire from other sources the amounts of crude oil and refined products whichEurope now Import* In one year from Iran would involve an extra dollarofssuming the level of prices remained the same as thatat the end

Loss of Iranian oQ production and of the refinery at Abadan would temporarily have an adverse effect upon Western Europeanactivity, and would Impose severeleases particularly upon the British, who control all the oil production In the country. Although the effect of the loss of Iran upon the volume of petroleum which could be made available to Western Europe mightelatively short Ume by developing reserve* and buDdlng refineries elsewhere, the

financial efleets would be overcome slowly, it at ell

LOSS OF AIX MIDDLE EAST OIL.he low of ell Middle East oU production would reduce the current supply of crude oil In the non-Soviet world by aboutillion metric tone per year. By Increasingto the greatest degree feasible In areas still accessible, this shortage could be reduced to aboutillion metric tons, which Isto aboutercent ofotal oil consumption in the non-Soviet world. SurBclent refining capacity would be available to process the reduced total supply of crude, but the problems or readjustment andmentioned In paragraph f> above would, of course, be greater, and the time required to carry them out would be longer.

maximum cutback In Westernoil consumption which would stillmaintenance of industrial productionthe levels ofndat the extreme minimumfor that purpose, Is estimatedercent.utbackno appreciable expansion offor normal economic developmentpurposes of rearmament, unlesseffected, expansion of Industryporta Hon facilities werewith solid fuel-utilising equipment,some conversion of existingusing equipment were made.theercent cutback8 million metric tons outtotal deficiency ofillion. Henceclear that even If Western Europeto less thanercent ofonsumption, the loss ofEast oil would make substantialnecessary In the United States.the fact that the US IS virtuallyIn oil production. It would have toconsumption by at leastercentallocation would Immediatelynecessary.

the price level ofetIn dollar requirements ofillion would occur If Westerna cutback ofercent In Itswere to procure from alternative sources an amount of oil sufficient to make up for the loss of Middle East Imports.

way can be foreseen at present bysatisfactory adjustment,ongertime, could be made to the total lossEast oil, unless new reserves ereor new sources of energythe Middle East now contributespercent of total non-Sovietercent of proved reservesthe Sovietery largethe presently contemplated Increase Inoil supply Is expected to come fromEast. Western Europe,not be able to compensate for theMiddle East oD save by profound changescurrently planned economic structure.

8PECIAL EFFECTS UPON THE UNITED KINGDOM

The effectsoss of Middle Bast o0 upon the UK, though no less adverse, would be somewhat different In nature from theupon most other Western European countries, In which the physical shortage of supply and the expenditure of dollarsto replace It would be the factors moat Immediately paramount. Even after the loss of the Middle East, British companies would own aboutercent of available crudeapart from that to the US andthey would control more than one-third of the txportabk surplus ofavailable to the non-Soviet powers. (US companies would own about one-half of crudeoutside the US andhere would be more than enough oil under theof the British to supply all their domestic requirements, plus bunkers and militaryif they chose to give priority to domestic requirements over other markets. Hence, tho UK wouldairly strong bargainingIn the negotiations which would befor the international allocation ofoil supplies, after the loss of Middleoutput.

On the other hand, the financial setback to the British resulting from the mas of their enormous Investments In Middle East oU,In Iran, and of the receipts both In

dollars and In soft currencies which arise from them, would tend to offset any specialwhich the UK might derive from Its ownership of other sources of supply. Loss of the economic (and strategic) power which the UK now possesses by virtue of Its control over the production and distribution of Middle

East oil would alsoactor of utmostFinally, the effectsotal toes of Middle East oU would indirectly exert upon the general structure of International trade and payments would be especially ad-Terse to the UK because of Its extraordinary dependence upon overseas trade.

TABUS

I. Estimated Imports of Crude Oil andProducts into OEEC.

II Estimated International Bunker{Refined Products) in the Persian Oulf Area.

Control of World Crude.

Ownership of World Crude.

Ownership of World Refining.

Loss of Iranian Oil.

VII, Loss of All Middle East OH

1

IMATEI IMPORTS OF CRUDE OIL AND REPINED PRODUCT* INTO OEEC COUNTRIES

ouw

Total WeaVroSA

U*w

Graad ToUl

ss.oes

IM

'

39

43

i* 11

ESTIMATED INTERNATIONAL BUNKER LIFTINGS (RUINED PRODUCTS) IN THE PERSIAN Gl'lf

AREA

t _ t/t

otEer MtddW East Total

M

a*sa

, liaa BabralD Total EartUlud* OEEC Couatrtaa Total

Wcatara llttttopkwoi S aM

iporUtf Art-

Total OtaWJ

TOTAL WORLD

4

3jj

e

9)fl *

Til.Ml

hi

v

ownerssif OF WORLD crude PRODUCTION

KaM SMdl Anbto

Km

qauu

OEEC Couatito*

ToUlHtmUpbert;

fbbw 'ToUl

ToUl WorW

incur L- rou.

loco ht|

ht| Pareeol

i I

mhdlUdu THpoSTaUl

l it.

AuiUftll* *Korttmp*Jn ORECCounUU*

AMI

eru

mmaf

ToUl DuW

ToUl

ToUl World

co

00

U0 o

tjm

r.6oo

sco

0

MM

44,

41,

lft.HO

-CO

.s&

i.m

.01

t.os

N

VI

LOSS OP IRANIAN

(ViUmmf J'-:

u i.i'

t/Y> I,&

fT/T M?

S. Um o* en>d* Import* rTOoa fallr.v "

1

omrodurt*frott Iraa by WajUraad 8wrttt(MT/T - -

I. AeouaJm* of

Gro- ooTW LuIf"-1 Ml . .

tul doJU, corf woaAlIyrn ?

UT/V

Till*

LOSS OP ALL MIDDLE RAJT OIL

roducUM -pbytJ-aJ qciaUU- (ItJO-JI)

KIMT/Y

b.T/T

ft, Urn of emd. Import* fromart by Wortero

Sftv,

CMT/T *

S.dollar oott of rtpladngIwm

ewoaad

T. DcCvu-tmproSta to BahMa PM/Urata Co,nodi

MMsh fcti by www Bmmj*isoo *

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pa/cant cutback

'. M

Original document.

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