Oil: Blunted Weapon?

Saudi Arabia's warnings of Arab economic reprisals unless the U.S. acted to curb the Israelis have revived speculation that the Arab "oil weapon" may be deployed again, as it was in 1973.

Experts tend to agree that an Arab oil embargo today would be ineffective for exactly the same reasons that the 1973 embargo was so effective.

Then, there was a seller's market for oil, with demand far exceeding production, whereas today demand and supply have more or less equalized. World oil stocks were down to a few weeks' supply at the time of the 1973 embargo; today, world inventories comprise some three months' worth of commercial supplies and two weeks' worth of government stocks.

Some Arab members of OPEC would have compelling reasons not to go along with an embargo, politics aside. With the end of the Gulf war, Iraq will want to start producing again to finance reconstruction. Libya and Algeria have already been reported as contemplating undercutting OPEC marker prices and exceeding production quotas in order to generate needed cash flow. Even major producers such as the United Arab Emirates and Qatar—and possibly Saudi Arabia—are hoping to avoid having to make cuts in domestic development spending mandated by reduced oil revenues. Non-Arab members of OPEC, such as Nigeria and Iran, would be more than willing to step into any void created by an embargo, throwing the Saudi-orchestrated price and production strategy into chaos.

Yet there is no room for U.S. complacency. History shows that economic and material considerations often take a back seat to politics when Arab passions are aroused.