INR–NIE Files

National Intelligence Estimate 2

secret
NIE–14

The Importance of Iranian and Middle East Oil to Western Europe Under Peacetime Conditions *

the problem

To estimate the importance of (a) Iranian oil production and (b) total Middle East oil production to Western Europe in time of peace.

assumptions

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

[Page 269]

conclusions

1. The amount of crude oil and refined products now exported from Iran could be derived from other areas by small increases in crude production and by fuller use of available refining capacity. At the rates of consumption and levels of prices prevailing at the end of 1950, the extra annual dollar charge to Europe of procuring this amount of oil elsewhere would be about $700,000,000.

2. Loss of Iranian oil production and of the refinery at Abadan would temporarily have an adverse effect upon Western European economic activity, and would impose severe financial losses particularly upon the British, who control all the oil 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 overcome in a relatively short time by developing reserves and building refineries elsewhere, the financial effects would be overcome slowly, if at all.

3. If all Middle East oil production were to be lost, a cutback of about 10 percent in the total oil consumption of the non-Soviet world would have to be imposed, even after a maximum practicable increase of production from other sources. This would call for substantial rationing in the United States as well as elsewhere. International allocation would be required. At the price level of late 1950 a net increase in dollar requirements of from $1 to $1.2 billion would occur if Western Europe, after a cutback of 10 percent in its consumption, were to procure from alternative sources an amount of oil sufficient to make up for the loss of Middle East imports.

4. It is estimated that if a cutback of 10 percent from present levels of oil consumption were imposed on Western Europe, it would permit maintenance of industrial production at approximately the levels of late 1950, and of transportation at the extreme minimum necessary for that purpose. No appreciable expansion of industry, whether for normal economic development or for rearmament, would be possible, unless economies were effected, expansion of industry and transportation facilities were accomplished only with solid fuel-utilizing equipment, and possibly some conversion of existing petroleum-using [Page 270]equipment were made. Rationing even to reduce consumption by 10 percent would present great difficulties in time of peace.

5. No way can be foreseen at present by which a satisfactory adjustment, over a longer period of time, could be made to the total loss of Middle East oil, unless new reserves 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.

discussions

1. Total petroleum requirements of Western Europe (including the UK) for the fiscal year 1950–51 are estimated at 66 million metric tons, of which 42.5 million will be imported as crude and 20 million as refined products; the remaining 3.5 million tons will be derived from indigenous sources. Of the total import requirements, 43.8 million metric tons, representing 70 percent, will come from the Middle East. In addition, international bunkers of 6 million tons and US military supplies aggregating approximately 2.5 million metric tons will be lifted in the Middle East area.

2. Of the total requirements of Western Europe, it is estimated that Iran alone will supply the following:

Millions of Metric Tons

Crude Oil Percent of WE Requirements
7 16
Refined Products
6.3 (including British Military) 31
Bunkers
4 67

3. It is estimated likewise that of total Western European requirements, the entire Middle East area will supply the following:

Millions of Metric Tons

Crude Oil Percent of WE Requirements
38 90
Refined Products
8.3 40
Bunkers
6 100

Loss of Iranian Production

4. If Iranian oil should cease to be available, the seven million metric tons of crude oil by which Western Europe would thereby fall short (according to the 1950–51 estimates) could be more than made up by increasing the output of British companies operating elsewhere in the world. Indeed it could all be replaced, at some additional dollar [Page 271]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.

5. Loss of the Abadan refinery, with its capacity of 27 million 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 in operation, to change the composition of refinery output, to alter tanker routings, and to complete the redistribution of crude oil among the other refineries.

6. To acquire from other sources the amounts of crude oil and refined products which Western Europe now imports in one year from Iran would involve an extra dollar expenditure of about $700,000,000, assuming the level of prices remained the same as that prevailing at the end of 1950.

7. Loss of Iranian oil production and of the refinery at Abadan would temporarily have an adverse effect upon Western European economic activity, and would impose severe financial losses 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 might be overcome in a relatively short time by developing reserves and building refineries elsewhere, the financial effects would be overcome slowly, if at all.

Loss of All Middle East Oil

8. The loss of all Middle East oil production would reduce the current supply of crude oil in the non-Soviet world by about 93 million metric tons per year. By increasing production to the greatest degree feasible in areas still accessible, this shortage could be reduced to about 53 million metric tons, which is equivalent to about 10 percent of estimated 1950–51 total oil consumption in the non-Soviet world. Sufficient refining capacity would be available to process the reduced total supply of crude, but the problems of readjustment and allocation mentioned in paragraph 5 above would, of course, be greater, and the time required to carry them out would be longer.

9. The maximum cutback in Western European oil consumption which would still permit maintenance of industrial production at approximately the levels of late 1950, and of transportation at the extreme minimum necessary for that purpose, is estimated to be about 10 percent. Such a cutback would permit no appreciable expansion of industry, whether for normal economic development or for purposes [Page 272]of rearmament, unless economies were effected, expansion of industry and transportation facilities were accomplished only with solid fuel-utilizing equipment, and possibly some conversion of existing petroleum-using equipment were made. Moreover, the 10 percent cutback would cover only about 6.6 million metric tons out of the total deficiency of 53 million. Hence it is clear that even if Western Europe were restricted to less than 90 percent of its estimated 1950–51 consumption, the loss of all Middle East oil would make substantial rationing necessary in the United States. Despite the fact that the US is virtually self-sufficient in oil production, it would have to cut its consumption by at least 10 percent. International allocation would immediately become necessary.

10. At the price level of late 1950 a net increase in dollar requirements of from $1 to $1.2 billion would occur if Western Europe, after a cutback of 10 percent in its consumption, were to procure from alternative sources an amount of oil sufficient to make up for the loss of Middle East imports.

11. No way can be foreseen at present by which a satisfactory adjustment, over a longer period of time, could be made to the total loss of Middle East oil, unless new reserves are proved elsewhere, or new sources of energy developed. Though the Middle East now contributes only 18.4 percent of total non-Soviet production, it contains 44.4 percent of proved reserves outside the Soviet orbit. A very large proportion of the presently contemplated increase in non-Soviet oil supply is expected to come from the Middle East. 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.

Special Effects Upon the United Kingdom

12. The effects of a loss of Middle East oil upon the UK, though no less adverse, would be somewhat different in nature from the effects upon most other Western European countries, in which the physical shortage of supply and the expenditure of dollars necessary to replace it would be the factors most immediately paramount. Even after the loss of the Middle East, British companies would own about 35 percent of available crude production apart from that in the US and Canada—i.e., they would control more than one-third of the exportable surplus of oil available to the non-Soviet powers. (US companies would own about one-half of crude production outside the US and Canada.) There would be more than enough oil under the control of the British to supply all their domestic requirements, plus bunkers and military liftings, if they chose to give priority to domestic requirements [Page 273]over other markets. Hence, the UK would have a fairly strong bargaining position in the negotiations which would be necessary for the international allocation of available oil supplies, after the loss of Middle Eastern output.

13. On the other hand, the financial setback to the British resulting from the loss of their enormous investments in Middle East oil, especially in Iran, and of the receipts both in dollars and in soft currencies which arise from them, would tend to offset any special advantages which 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 also be a factor of utmost importance. Finally, the effects which a total loss of Middle East oil would indirectly exert upon the general structure of international trade and payments would be especially adverse to the UK because of its extraordinary dependence upon overseas trade.

Tables

[Here follows a list of the tables printed below.]

Table I

estimated imports of crude oil and refined products into oeec countries 1950–1951

(1,000 MT/Y)

From—
Crude Products Total Crude
(percent)
Products
(percent)
Total
(percent)
Eastern Hemisphere:
Middle East (Includes US military) 38,065 8,321 46,386 89.69 41.39 74.16
Other 100 100 .50 .16
Total 38,065 8,421 46,486 89.69 41.89 74.32
Western Hemisphere:
USA 150 1,850 2,000 .35 9.20 3.20
Caribbean 4,067 9,604 13,671 9.58 47.77 21.86
Other 160 230 390 .38 1.14 .62
4,377 11,684 16,061 10.31 58.11 25.68
Grand Total 42,442 20,105 62,547 100.00 100.00 100.00

Table II

estimated international bunker liftings (refined products) in the persian gulf area

(1950–1951)

1,000 mt/y Percent
From Iran 4,000 66.67
From other Middle East 2,000 33.33
Total 6,000 100.00
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Table III

control of world crude reserves

(1950–1951)

Area United States British Other Total 1,000 mt Percent of world total
1,000 mt Percent 1,000 mt Percent 1,000 mt Percent
Eastern Hemisphere:
Middle East
Iraq 170,445 23.7 378,288 52.6 170,445 23.7 719,178 7.2
Kuwait 753,424 50.0 753,424 50.0 1,506,849 15.1
Saudi Arabia 1,232,877 100.0 1,232,877 12.3
Iran 958,904 100.0 958,904 9.6
Bahrein 21,917 100.0 21,917 .2
Total 2,156,746 2,112,533 170,445 23.7 4,439,725 44.4
East Indies Islands 62,172 31.3 136,459 68.7 198,631 2.0
OEEC Countries 5,834 20.0 7,293 25.0 16,044 55.0 29,171 .3
Total 68,006 143,752 16,044 227,802
Western Hemisphere:
US and Canada 3,713,562 100.0 3,713,562 37.0
Mexico 116,438 100.0 116,438 1.2
Caribbean Exporting Areas 888,865 61.5 550,663 38.1 5,781 0.4 1,445,309 14.5
Total 4,602,427 550,663 122,219 5,275,309
Other 1.4 45,316 .5
Total World 9,987,972

Table IV

ownership of world crude production

(1950–1951)

Area United States British Other Total 1,000 MT Percent of world total
1,000 MT Percent 1,000 MT Percent 1,000 MT Percent
Eastern Hemisphere:
Middle East
Iraq 1,720 23.7 3,810 52.5 1,720 23.7 7,250 1.44
Kuwait 9,500 50.0 9,500 50.0 19,000 3.77
Saudi Arabia 29,750 100.0 29,750 5.91
Iran 35,000 100.0 35,000 6.95
Qatar 476 23.8 1,048 52.4 476 23.8 2,000 .40
Bahrein 1,500 100.0 1,500 .30
Total 41,446 50,858 2,196 94,500 18.77
East Indies Islands 3,350 31.3 7,350 68.7 10,700 2.13
OEEC Countries 538 20.0 681 25.0 1,563 55.0 2,782 .55
Total 3,888 8,031 1,563 13,482
Western Hemisphere:
US and Canada 288,750 100.0 288,750 57.36
Mexico 10,000 100.0 10,000 1.99
Caribbean Exporting Areas 55,055 61.5 34,108 38.1 327 0.4 89,490 17.77
Total 343,805 34,108 10,327 388,240
Other 1.4 7,110 1.41
Total World 503,332
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Table V

ownership of world refining capacity

(1950–1951)

Area United States British Other Total 1,000 MT Percent of world total
1,000 MT Percent 1,000 MT Percent 1,000 MT Percent
Eastern Hemisphere:
Middle East
Haifa 800 100.00 800 .02
Kuwait 625 50.00 625 50.00 1,250 .25
Saudi Arabia 6,500 100.00 6,500 1.30
Abadan 27,500 100.00 27,500 5.52
Tripoli 142 23.75 285 42.50 173 28.75 600 .01
Bahrein 8,000 100.00 8,000 1.61
Total 15,267 29,210 173 44,650
East Indies Islands 3,200 31.68 6,900 68.32 10,100 2.03
South & East Asia 2,500 .50
Australia & New Zealand 650 .01
Northern Africa & Spain 3,450 .69
OEEC Countries 44,429 8.92
Total 3,200 6,900 61,129
Western Hemisphere:
United States 300,000 60.20
Canada 15,500 100.00 15,500 3.11
Mexico 8,350 100.00 8,350 1.68
Caribbean Exporting Areas:
Colombia 1,420 100.00 1,420 .28
Venezuela 7,007 57.2 5,243 42.8 12,250 2.46
Peru 1,452 96.8 24 1.6 24 1.6 1,500 .30
Ecuador 230 100.00 230 .00
Trinidad 4,750 100.00 4,750 .95
Netherlands W. Indies 21,000 53.5 18,300 46.6 39,300 7.89
Total 30,879 28,547 23,874 383,300
Other Latin American 9,250 1.86
Total 30,879 28,547 23,874 392,550
Total World 498,329

Table VI

loss of iranian oil

(Millions of Units)

1. Production—physical quantities (1950–51)
a. Crude 35 MT/Y
b. Refined 25 MT/Y
2. Loss of crude imports from Iran by Western Europe 7.5 MT/Y
3. Dollar element of cost in replaced crude $55
4. Loss of refined products imported from Iran by Western Europe and Sterling Area 25 MT/Y
5. Annual dollar cost of replacing refined (Item 4) $765–775
6. Gross dollar cost of replacing crude and refined (Items 3 and 5) $820–830
7. Dollar savings—equipment and services $110–120
8. Estimated net dollar cost annually (Item 6 minus Item 7) $710

Table VII

loss of all middle east oil

(Millions of Units)

1. Production—physical quantities (1950–51)
a. Crude 94.5 MT/Y
b. Refined 44.7 MT/Y
[Page 276]2. Loss of crude imports from Middle East by Western Europe 43.5 MT/Y
3. Dollar element in replaced crude $800
4. Loss of refined products imported from Middle East by Western Europe and Sterling Area 38 MT/Y
5. Annual dollar cost of replacing refined (Item 4) $1,200
6. Gross dollar cost of replacing crude and refined (Items 3 and 5) $2,000
7. Dollar savings—equipment and supplies, profits to Bahrein Petroleum Co., dollar element in goods furnished Middle East by Western Europe, etc $600
8. Estimated net dollar cost annually assuming no cutback in current requirements (Item 6 minus Item 7) $1,400
9. Ten percent cutback would save $300
  1. This National Intelligence Estimate (NIE) is one of a series of high-level interdepartmental reports first published in the fall of 1950 by the Central Intelligence Agency. Each Estimate was intended to be the most authoritative interpretation and appraisal of a situation available to policymakers and to present the coordinated expression of the best intelligence opinion from among several departments and agencies. The priorities and frames of reference for a proposed Estimate were set by the Intelligence Advisory Committee. This Committee was composed of the Director of Central Intelligence, who served as Chairman; the Special Assistant to the Secretary of State for Intelligence; and the Chiefs of Intelligence of the Army, Navy, Air Force, Joint Chiefs of Staff, Atomic Energy Commission, and Federal Bureau of Investigation. The organizations represented on the Intelligence Advisory Committee drafted sections of an Estimate in accordance with their respective fields of responsibility; the Department of State provided all political and some economic sections. An integrated draft paper was discussed and revised by interdepartmental working groups under the coordination of the Central Intelligence Agency’s Office of National Estimates, then submitted to the Intelligence Advisory Committee for final revision and approval. Provision was made for the notation of dissent where unanimity did not exist. Immediately upon approval, a National Intelligence Estimate was published by the Central Intelligence Agency and forwarded to the President, the appropriate officers of Cabinet level, and the National Security Council.
  2. [Note on the title page.] This estimate has been prepared in response to a request from the Senior Staff of the National Security Council. The basic data were supplied by an interdepartmental ad hoc committee of technical representatives of ECA, the Petroleum Committee of the Munitions Board, the Departments of the Treasury, Commerce, and State, and CIA. The intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and the Joint Staff participated in the preparation of this estimate and concur in it. This paper is based on information available on 30 December 1950.
  3. Figures in this paper representing estimates of extra annual dollar costs and of the extent of oil shortages which would result from a loss of Iranian or Middle Eastern oil are indicative rather than exact. They will hold true as given only as long as oil prices stay at the levels of late 1950, and oil production and consumption continue at the rates currently estimated for the fiscal year 1950–51. The general effect of the rearmament programs in the US and in Western Europe will presumably be to raise the consumption of oil, and probably also to raise its price. These factors would tend to make the oil of the Middle East more important to the western economies, and to cause its loss to be even more severely felt than is indicated by the figures cited in this paper. [Footnote in the source text.]
  4. MT/Y Metric tons per year. [Footnote in the source text.]