206. Paper Prepared in the Office of Economic Research, Central Intelligence Agency1

Probability of Events Resulting in a Reduction of Middle East Oil Supplies to the United States

It is not possible to predict the exact complex of events that might result in a cut-off of Middle Eastern oil to the United States. The death of a leader, an unexpected turn for the worse in the Arab-Israeli conflict, arms deliveries, pressures from outside the area, personality clashes, the unlikely combination of any of these or other elements could trigger events which ended in an oil stoppage. From among the variety of possible events, we have selected six to examine more closely. None can be rated as likely to occur, but in the order of their probability of occurrence during the next two to three years, they are:

A Libyan embargo of the US alone,
An all-Arab embargo of the US alone,
An all-Arab embargo of the US and Western Europe,
An all-Arab embargo of the US, Western Europe, and Japan,
An Iran/Iraq war with partial oil cut-off,
An Iran/Iraq war with total oil cut-off.

Libyan Embargo of the US Alone

Colonel Qadhafi’s rule of Libya has been characterized by a mixture of emotion and tactical shrewdness—with the latter often disguised as the former. At some point in the next few years, his determination to set an example for other Arabs—and Muslims—to follow could lead him to establish a total embargo of Libyan oil to the United States. Such a move would seriously affect neither US supply nor Libyan revenues. It would seem to be a relatively safe symbolic card for Qadhafi to play, especially useful at a time when his domestic or inter-Arab popularity needed a boost. Such an embargo, if it came about, could be extremely long lasting, because neither side would be losing enough to make concessions necessary and nationalist rhetoric and “positions” would make it difficult for Libya to climb down once the step had been taken.

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We believe this to be the most likely of the six illustrative events. However, we consider that the odds of its happening during the next few years are less than fifty-fifty.

An All-Arab Embargo of the US Alone

An all-Arab embargo of the US alone is extremely unlikely except in the context of a new Arab-Israeli war. Should such a war come about—an event which we do not expect during the next two or three years—the Arab states as a group would be much more likely than in the past to try to enforce an anti-US embargo.

An embargo against the US alone would be somewhat of a cosmetic affair unless the Arab exporting countries significantly extend their influence on the destination and end use of exported crude. Sharing agreements with Europe and Japan and a continuing domination of the world oil industry by the US majors would limit the effectiveness of an embargo against the US alone. An embargo against the US alone, following an Arab-Israeli war in which heavy US support to Israel were a factor, could extend a year or longer.

An All-Arab Embargo of the US and Western Europe

If the Arab states are serious about using oil as a weapon in the event of a new Arab-Israeli war, they will have to decide whether an embargo that will hurt the US must not include at least Western Europe. This would entail considerable hardship for the poorer oil-producing countries and would punish European countries, most of which are pro-Arab or neutral on the issue of Israel. For these reasons, we consider it much less likely than an embargo against the US alone.

Such an embargo would hold up well only during the war itself—probably a few weeks at most. Thereafter, the Arab states whose development plans depend on steady income from oil would be under increasing domestic pressure to reestablish their main revenue source. Within a few months we would expect countries such as Iraq and Algeria to resume trading with the more pro-Arab Western European nations. Very shortly the embargo would degenerate into an embargo against the United States alone. Saudi Arabia, despite its history of moderation, could, because of its financial resources, be the last country to abandon the embargo. Such a course might be attractive to the Saudis as a means of asserting moral and even political leadership in the Arab world. This development is less unlikely the farther we move ahead in time.

An Iran/Iraq War with a Partial Oil Cutoff

Although the heavily armed Iranian and Iraqi governments will continue to rattle their sabers at each other, we do not expect a war that would involve attacks on oil production facilities during the next [Page 565]few years. A border incident could escalate, but in this case the probable area of fighting would not be near most oil installations, and we would not expect either nation to try to destroy the petroleum facilities of the other since both are vulnerable. Under such conditions, Iraqi oil would continue to flow to the Mediterranean but would be blocked from its Persian Gulf outlets. Iranian oil flows would be limited by the reluctance of shippers to risk their tankers in a war area. We would expect oil production and exports to reach normal levels very quickly after the end of the fighting.

An Iran/Iraq War with Total Oil Cutoff

There is a slight possibility that larger-scale warfare between Iran and Iraq could bring oilfields, refineries, pipelines, and loading facilities under attack. Third country shipping would avoid the upper reaches of the Persian Gulf. Oil exports from the warring nations—and perhaps from other Persian Gulf states as well—could be sharply reduced or eliminated for the duration of the fighting.

“Total” war world by definition be more bitterly fought—and its consequences would be more long-lasting—than a limited war. After initial victories by one side (probably Iran), conventional military activity might be replaced by guerrilla warfare while the losing side (probably Iraq) petitioned local allies or major powers for help. Even if help was not forthcoming, sabotage and small operations could seriously disrupt the oil industry of the two states.

Other Scenarios

There are many other scenarios that we could have examined. Among the more likely of these are restrictions in output growth by one or more of the major producers. This prospect, however, is extremely complex; it is the subject of a National Intelligence Estimate now in production.

  1. Source: Central Intelligence Agency, Office of Economic Research, Job 80–T01315A, Box 35. Confidential. Transmitted to Knubel under a September 24 covering memorandum from Walter J. McDonald, Acting Deputy Director of the Office of Economic Research. McDonald noted that the estimates had been discussed within the CIA but not vetted with any other agency, and they were “in support of the White House Committee on the International Aspects of Energy.”