WORLD VIEW : SAUDI OIL: Is It Worth Fighting For? : The shiekdom is the key factor in the world's most important industry. If Hussein overruns it, he would control 45% of tthe Earth's oil reserves.


Thousands of American soldiers are dug in across bleak desert to defend a nation half a world--and a cultural gulf--away from home. A flotilla of U.S. warships steams toward the Arabian Peninsula.

Other Americans, innocent civilians caught in the wrong place at the wrong time, become pawns in a dangerous crisis; detained in relative comfort, perhaps, but detained nonetheless in suddenly hostile Iraq and Kuwait, hostages to an international showdown. American diplomats scurry around the planet marshaling worldwide support against an aggressor.

On U.S. shores, consumers mutter protests as gasoline prices shoot skyward. They worry that an economy already on the brink will slide into the white waters of recession. Yet they rally behind their President, seemingly ready to bear the costs of confronting Saddam Hussein.

Why do we care about Saudi Arabia, where President Bush has drawn a line in the desert sands? What is at stake for the United States? The answers revolve around the one thing that the faraway desert harbors more of than any other parcel of land on Earth: oil.

With his forcible takeover of Kuwait, the man that Middle Easterners know simply as Saddam is already in control of 20% of the known reserves of a commodity that is like blood to the global body; if he could successfully overrun Saudi Arabia, he'd have 45%. (The United States has 2.6% of the world's proven oil reserves.)

Saudi Arabia is the dominant factor in what is arguably the world's biggest and most important industry. Whoever controls its vast petroleum reserves dictates world oil prices and holds a potential whip hand over living standards from Tokyo to Tarzana, from Paris to Pacoima.

And America, whose campaign for energy independence faltered long before the goal was achieved, stands nearly as vulnerable to the vagaries of Middle East oil politics as it has ever been.

So, like it or not, the question is unavoidable: Is Saudi Arabia worth fighting for?

How Much Saudi Oil?

Saudi Arabia is an important U.S. ally in the Middle East, a voice of moderation among the Persian Gulf states and the "Guardian of Islam" as home to that faith's holiest shrines, Mecca and Medina.

Above all else, however, it is the world's biggest oil well. "Everything else--its role in the Middle East--comes from oil," said James Akins, who served as U.S. ambassador to the desert kingdom from 1973-1975.

Saudi Arabia sits atop the world's largest proven reserves of crude oil--255 billion barrels of it, constituting more than 25% of the world's total. This quantity of oil, by way of illustration, is sufficient to satisfy even the voracious appetite of the United States for 40 years. That accident of geology accounts for Saudi Arabia's singular significance not only to America but also to much of the industrialized world.

In the first quarter of this year, Saudi Arabia's production of crude oil (including its half share of oil from the Neutral Zone with Kuwait) averaged more than 5.7 million barrels a day, or about 9.5% of the world's total, according to CIA figures.

Saudi Arabia is the United States' biggest source of imported oil, now accounting for 1.3 million barrels per day--7.6% of its total needs and 17% of total net U.S. petroleum imports, according to the Department of Energy. Similarly, Saudi Arabia supplies 18.5% of Japan's net oil imports and 6% of West Germany's.

Not only is Saudi Arabia's oil abundant, it is cheap to produce--$1 per barrel versus $7 or $8 elsewhere, said Philip K. Verleger Jr., a visiting fellow at the Institute for International Economics in Washington. "They've got the infrastructure, and you just find it in such large amounts," he said.

Stability Another Factor

Saudi Arabia has one other important attribute: stability.

"Of all the oil sheikdoms of the Persian Gulf, it is more of a real country," said Fereidun Fesharaki, head of the energy studies program at the U.S.-funded East-West Center in Honolulu. "It has real industry; it has educated labor . . . it is perhaps the only Arab country that is self-sufficient in food, and it is a source of stability economically and politically."

Saudi Arabia has assumed the role of the leading "price dove" among the 13 members of the Organization of Petroleum Exporting Countries (OPEC), arguing for stable and moderate prices and stronger ties with consuming nations.

"For the most part, it has balanced the system and tended to line up on the moderate side, often as the leader of the moderate side," said Daniel Yergin, president of Cambridge Energy Research Associates in Massachusetts and author of the forthcoming book, "The Prize: The Epic Quest for Oil, Money and Power.' "

It's a matter of enlightened self-interest: With the world's largest oil reserves, Saudi Arabia wants to make sure that high prices don't encourage nations to seek alternatives to oil.

In the past, Saudi Arabia has been able to exert its influence because it has the greatest spare capacity to produce oil in the world. In short order it can boost its production by as much as 2 million barrels per day, accounting for roughly half of the world's total spare capacity, and that has given Saudi Arabia effective control over world oil prices.

The arithmetic looks different now that Iraq's takeover of Kuwait and its aftermath have effectively stripped their combined output of 4 million barrels per day from the world equation. But if anything, Saudi Arabia's excess production capacity is now more important to the world's economy.

And overriding it all remains the fearsome prospect of Saddam Hussein gaining control over 45% of the world's proven oil reserves.

"We couldn't tolerate that if (the oil reserves) were in Switzerland's hands," former U.S. Ambassador Akins said.

How the Money Piles Up

Those reserves support not only a massive worldwide industry but also a lifestyle epitomized at the corner gasoline station, where the average motorist slips a $20 bill through a cashier's window to pay for a fill-up.

That $20 transaction, repeated millions of times across the nation and across the world, becomes a flood of currency upon which floats the oil industry and ultimately the nations producing that oil.

In 1989, 52 of the world's 500 largest industrial corporations--and four of the top 10--were oil companies, accounting for a staggering $758.9 billion in combined sales. That money supported operations ranging from service stations to refineries; it financed fleets of trucks, an armada of tankers and a worldwide network of pipelines; it kept occupied production plants, offshore platforms, onshore drilling rigs and all the people who run them.

And it turned Saudi Arabia and its oil-rich Persian Gulf neighbors into such powers of international finance that the International Monetary Fund once postponed its scheduled annual meeting so as not to interfere with the Muslim holy month of Ramadan.

The 1st U.S. Oil Crises

Two oil price shocks in the 1970s--the Arab oil embargo of 1973 and the Iranian revolution of 1979--seemed, for a time, to galvanize the United States to reduce its dependence on Middle East oil.

The crises forced Americans to line up for hours to buy gasoline. Heating oil ran short. After the second shock, President Jimmy Carter called the campaign for energy independence "the moral equivalent of war."

Initially, investment in domestic oil development soared, with U.S. production climbing to a peak of 9 million barrels a day in 1985, according to the American Petroleum Institute. And consumption fell sharply after each successive shock, hitting its low of 15.7 million barrels a day that same year.

Conservation measures took hold. Auto makers were told to begin producing more fuel-efficient cars. Utilities began offering audits of home energy usage--underwriting home "weatherization" and installing low-power lighting in commercial buildings.

Meanwhile, efforts to develop alternative energy sources got heavy government support. Tax credits in the early '80s spurred the installation of solar water-heating systems in 1.2 million buildings. A multibillion-dollar program was mounted to develop synthetic fuels out of coal.

As a result, U.S. oil imports fell to a low of 31.3% of the nation's total oil needs in 1984, down from a high of 47.7% in 1977.

Why No Alternatives?

But some of the measures became a victim of their own success. As the demand for oil plummeted here and in other countries, lower prices followed. By 1986, they had bottomed out at around $9 a barrel, a free fall from the nearly $40-per-barrel price just six years earlier.

Concern about energy security waned. Development of a coherent national energy policy was put on the back burner.

More ominously, the fall in oil prices also put a damper on the U.S. domestic oil industry. After robust growth in the early 1980s, new drilling fell off sharply, beginning a steady decline in production to current levels of about 7.3 million barrels a day.

Federal support for conservation measures--both research into energy efficiency and direct support for local building weatherization programs--evaporated during the Reagan years. President Bush's fiscal 1991 budget calls for further cuts.

The Reagan Administration delayed imposition of strict fuel economy standards for cars and trucks, easing the way for manufacturers to again start building bigger vehicles. Under pressure from rural lawmakers, the nationwide 55-miles-per-hour speed limit, promoted mainly as an gas-saver, was relaxed.

There was no room in an oil-glutted market for synthetic fuels. One by one, projects collapsed, including the Great Plains coal gasification plant in North Dakota, which had begun supplying natural gas to Midwestern consumers. Global-warming concerns gave coal-based technologies another black eye.

Oil and U. S. Energy Needs

For all the tumult generated by oil in the last two decades, America's broad patterns of energy consumption have changed remarkably little.

Petroleum products power the cars, trucks and planes that carry Americans--and American commerce--across the continent. Whole regions depend on oil for winter heat. Petroleum provides indispensable raw materials for plastics, synthetic fabrics, fertilizers, pesticides and pharmaceuticals.

Last year, petroleum generated 42% of the energy consumed in the United States, more than half again as much as natural gas, the second biggest source, and just 5% less than in 1973, when the Arab embargo first made the cost of oil a decisive factor in the economic lives of consumers and industry.

Perhaps the only sector of the economy that has proven able to wean itself from oil since that first oil shock is the electric power industry. In 1973, utilities relied on fuel oil for 16.9% of power generation. By 1988, oil fueled only 5.5% of utility operations, with coal and nuclear-powered generation taking up the slack.

The manufacturing economy's dependence on oil, by contrast, is virtually unchanged since the 1973 oil shock, with industry counting on petroleum for 36% of its energy needs. And American transportation remains totally in oil's grip, relying on petroleum for 97% of the power to move people and goods. In all, about 60% of the oil used in the United States is burned in the form of gasoline.

How U.S. Stacks Up

America has done as much as any major industrial nation in the last decade to squeeze the waste out of its overall energy usage. Figures adjusted for economic growth show that only Japan cut its energy needs more than the United States between 1980 and 1988 (the last year for which comparative usage has been calculated)--and then only by a fraction.

But America has accomplished far less than its economic competitors in quenching its thirst for oil.

France, in the 1980s, sliced its demand for oil by 22%, and Canada and West Germany by more than 11%--in each case mainly by bringing nuclear power plants on line. But the United States could muster just a 0.1% drop in its dependence on oil, according to the Organization for Economic Cooperation and Development.

Those trends left the United States in the middle of the pack among the industrial powers in its craving for oil.

The 42% of U.S. energy usage that comes from petroleum products compares with 31% for Canada, which gets almost as much energy from hydroelectric plants, and 37% for Britain, which burns a lot of coal. Yet Italy relies on oil for 60% of its energy needs and Japan uses oil for 57% of its power. Even France, always cited as a heavy user of nuclear power, is more dependent on oil than America, counting on petroleum for 44% of its power supply.

Further, of the Western industrial nations, only the United States and Britain have substantial oil resources of their own. Japan and most of Western Europe must import virtually all the oil they use--and thus are even more vulnerable than the United States to such events as the current crisis in the Persian Gulf.

Experts say America's sheer size puts it at a disadvantage in any comparison of oil use with her smaller industrial peers. Cars and trucks, powered by gasoline, must travel long distances; passenger trains do not offer the alternative they provide in Europe and Japan. Nor has the United States sought to engineer lower consumption by boosting gas prices to the much-higher levels that prevail in many other countries.

The Current Crisis

America's energy situation is not completely bleak nearly two decades after it first felt its vulnerability to Mideast oil dependency.

In the first half of 1990, U.S. demand for petroleum products, at 16.9 million barrels a day, was well short of the 1978 peak of 18.8 million barrels--albeit considerably above the 1985 low.

Factoring in economic expansion, oil consumption last year was 27% below 1973 levels, according to the U.S. Department of Energy. That means that energy usage grew, roughly, only three-quarters as quickly as did the overall economy.

Some of the most energy-conscious industries have cut fuel use dramatically. American steelmakers, beset by foreign competition, have cut the energy used to make a ton of steel by a third since the 1973 embargo. U.S.-made airliners today use 18% to 44% less fuel than the previous generation of aircraft.

Quiet progress, too, has made some alternative energy forms more cost-effective.

Companies in West Germany, Sweden and Japan have developed highly efficient turbines for wind-powered electrical generation. The latest crop of photovoltaic cells, which convert sunlight into energy, can capture three times more power. Methanol fuels, made from corn, are being widely tested. General Motors has said it is on the verge of introducing a mass-produced electric car.

One of the most dramatic success stories is in Southern California. Luz International Ltd. generates 95% of the world's solar power at eight "solar fields" in the Mojave Desert, blanketed with hundreds of thousands of computer-controlled mirrors. The Westwood-based firm supplies 1% of Southern California Edison's energy needs, enough to power 385,000 homes.

Under President Bush and Energy Secretary James D. Watkins, new attention has been turned toward developing an energy strategy, with options to be presented to Bush later this year.

But the picture is hardly rosy. Production of oil from Alaska's vast Prudhoe Bay fields, whose steady growth had moderated the falloff in total U.S. production, began to decline in 1989 as those fields matured.

Meanwhile, American oil imports have grown steadily from their 1984 low. In the first half of 1990, imports accounted for about half of the oil used in this country, an all-time high level.

Much of that oil comes from Saudi Arabia. And that has set the stage for the current crisis.

What's Next?

Will there be a fight for Saudi oil? Here's what some of the experts think:

James Akins, former U.S. ambassador to Saudi Arabia .

"I don't believe that Saddam Hussein will attack Saudi Arabia. He is a rational man, and an attack on Saudi Arabia would be an irrational act that would bring us in. He might have a quick victory, but he will ultimately be driven back and his capital destroyed.

"He's extremely intelligent. What happens now is that he will hunker down with Kuwait, and clearly hopes that we will blink first. I'm sure he recalls (President Ronald) Reagan saying that we had a vital interest in Lebanon . . . and that we would never be driven from Lebanon. But then our Marine barracks were blown up, and we slinked away with our tail between our legs. He'll wait until there are gas lines and people shooting each other over gasoline, and the price of oil goes up . . . and people are talking not about an Arab oil embargo, but about a Bush boycott as elections get near. He thinks we'll eventually back off."

Daniel Yergin, president of Cambridge Energy Research Associates and author of "The Prize: The Epic Quest for Oil, Money and Power."

"Certainly the Saudis' asking and allowing U.S. troops there means they feel that their entire system could be at stake. . . . I think there will be a heightened emphasis on the security of Saudi Arabia, with guarantees of a swift response. You can't wait a week to move forces in to protect it. . . . They did not want that before; they wanted more ambiguity in that relationship (with the United States). But Kuwait wanted to keep its distance too, and paid a heavy price for that."

Thomas Burns, chief economist, Chevron Corp.

"There are two alternative (scenarios): one, where something serious happens soon, with lots of related activity. The other alternative is . . . a stalemate. . . . But it's hard to envision a scenario where things go back to where they were before.

"(The first scenario) is a fairly quick escalation of military conflict in the region. . . . Destruction of oil (installations) would certainly have to be expected. . . . Obviously, from a military strategic point of view, those would have to be prime targets.

"Under the (second) scenario . . . remember, Iraq is used to war. They did carry out an eight-year war (with Iran) in the 1980s. . . . (They) have most everything they need internally, short of food supplies and services to the country. . . .

"(But) a direct land invasion of Kuwait, let alone Iraq, (by U.S. forces) is highly unlikely."

William W. Hogan, director of the Energy and Environmental Policy Center at Harvard University.

"If the President (Bush) achieves his objectives quickly, it would be a very different world than if (Iraqi President Saddam) Hussein invades Saudi Arabia. In the middle, you have everybody staring at each other over the barricades. If I had to guess, my layman's uninformed opinion would be that we will have staring over the barricades. And if we do, we lose Iraqi and Kuwaiti oil production from the world market (as a result of the worldwide embargo). . . . But how long can Iraq hold out in an economic boycott? How long can a country with a police state and a holy war hold out? Probably a long time. . . .

"I don't see how Hussein gets out of this gracefully, and that's a problem. If there's no graceful exit, at minimum, he will sit tight for a long time, and in the worst case, he might do something that's not very smart in his long-term interests, but dangerous for us . . . such as trying to seize part of Saudi Arabia, entering into armed conflict with American troops . . . or inflicting pain to make his mark, using chemical weapons."

Fereidun Fesharaki, head of the energy studies program at the U.S.-funded East-West Center in Honolulu.

"There has to be a conflict. And if there isn't one, the United States has to create one. Time is on the Iraqis' side. If it goes on for two or three months . . . the embargoes will eventually be lifted because you will be entering the high autumn (demand) situation, and oil prices will go up to $30 per barrel, and the Europeans and the Japanese won't keep it (the embargo)."

Top 10 Crude Oil Reserves (billion barrels, estimated):

1. Saudi Arabia: 254.96

2. Iraq: 100.00

3. Kuwait: 94.52

4. Iran: 92.86

5. United Arab Emirates: 92.20

6. Venezuela: 58.50

7. Soviet Union: 58.40

8. Mexico: 56.36

9. United States: 25.86

10. China: 24.00 SOURCES: U.S. Department of Energy, Energy Information Administration; Oil & Gas Journal. Top 10 Crude Oil Producers (million barrels per day):

1. Soviet Union: 11.43

2. United States: 7.39

3. Saudi Arabia: 5.60

4. Iran: 3.00

tie. Iraq: 3.00

6. China: 2.75

7. Mexico: 2.61

8. United Arab Emirates: 2.00

tie. Venezuela: 2.00

tie. Kuwait: 2.00 SOURCES: U.S. Department of Energy, Energy Information Administration; Oil & Gas Journal. Where Saudi crude oil goes:

United States: 27.0%

Other Asia, Far East: 21.4%

Western Europe: 19.1%

Japan: 15.3%

Middle East: 6.7%

Other: 5.3%

Latin America: 5.2% SOURCES: U.S. Department of Energy, Energy Information Administration; Oil & Gas Journal. Sampling of Gasoline Prices per gallon in Los Angeles and selected cities around the world (as of Aug.10, 1990):

Los Angeles: $1.26

Beijing: $0.53

Bogota: $0.54

Jeruselem: $3.00

Johannesburg: $1.90

Lima: $2.10

London: $3.95

Managua: $1.85

Mexico City: $0.78

Moscow: $2.61

Paris: $3.93

Rio De Janeiro: $1.92

Rome: $5.20

San Jose: $1.40

Tegucigalpa: $1.25

Tokyo: $3.15

Toronto: $1.71

Warsaw: $1.09

West Berlin: $3.08 Source: Los Angeles Times

U.S. total consumption of energy (figures in quadrillion Btu, 1989):

Coal: 18.916

Natural Gas: 19.358

Petroleum: 34.211

Hydroelectric: 2.860

Nuclear Electric: 5.687

Other*: .248

Total U.S. Btu consumption: 81.280 quadrillion

* Imports of coal coke, electricity generated for distributions from wood, waste, geothermal, wind, photovoltaic and solar thermal energy. Source: Energy Information Administration, U.S. Department of Energy What America does with oil:

Total petroleum used per day: 17.24 million barrels (100%)

Gasoline for motor vehicles: 7.33 million barrels (42.5%)

Jet Fuel: 1.49 barrels (8.6%)

Household heating oil and diesel fuel: 3.15 million barrels (18.3%)

Electric generation and commercial and industrial heating: 1.35 million barrels (7.8%)

Methane, propane, butane fuels: 1.66 million gallons (9.6%)

Other Uses*: 2.26 million barrels (13.1%)

* Includes kerosene, plastics and other petrochemical-based synthetics, lubricants, wax, and asphalt.

Based on 1989 figures

Source: Energy Information Administration, U.S. Department of Energy Price breakdown of a gallon of gas (first half 1990):

Cents per gallon:

4 Oil company profit

18 State tax

9 Federal tax

13 Dealer cost and profit

26 Refinery cost

43 Crude cost Source: Chevron Corp. Facts: Saudi Arabia, Iraq and Kuwait rank 1-2-3 in proven crude oil reserves as of Jan. 1, according to Oil & Gas Journal's "Worldwide Report" issue.

Their reserves total nearly 450 billion barrels of oil, or 45% of the world Known reserves. They have more than half the world's reserves if you exclude the Soviet Union, which ranks No. 7 on the list.

According to data provided by the Energy Information Administration, petroleum accounted in 1989 for 42.1% of all energy consumed in the U.S., far exceeding natural gas, coal, or any other energy source.

Oil imports from Saudi Arabia, Iraq and Kuwait last year accounted for 10.6% of all U.S. petroleum use and 4.5% of total energy consumed.

Research: TOM LUTGEN / Los Angeles Times

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