southern africa and the oil embargo

Southern Africa and the Oil EmbargoAuthor(s): Barbara RogersSource: Africa Today, Vol. 21, No. 2 (Spring, 1974), pp. 3-8Published by: Indiana University PressStable URL: http://www.jstor.org/stable/4185388 .

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Southern Africa and The Oil Embargo

Barbara Rogers

The Arab-African alliance, and the resulting decision to place a complete oil embargo on South Africa, Rhodesia and Portugal, has set the scene for some new perspectives in southern Africa. Ever since Sharpeville and the boycott movement of the early 1960s, South Africa has built up its economic and military defenses to guarantee against all contingencies - except an oil embargo.

Acutely aware of the dangers involved in such an embargo, the South African Government has lavished hundreds of millions of rand on refineries, pipelines, special off-shore terminals, a fruitless search for oil in South Africa and Namibia, and the establishment of oil reserves in tank farms and disused coal-mines. Although all the statistics are top secret, the reserves would be likely to last at least six months, and no more than one year. 1 Reports of stocks for up to four years are circulating, but the financial burden of six months' supply tying up scarce capital is already very severe. And what was adequate for two years' reduced consumption at the beginning of the stockpile program in 1965 would barely cover six months' normal use now, since imports have risen so steeply.

Iran has been supplying about 25 pCt. of South Africa's oil imports,2 a decline from 40 pct. in 1972. The declining imports from Iran could be the essential factor in South Africa's dilemma. The remaining 75 pct. of imports has been coming from Saudi Arabia (23.9 pct.), Iraq (18.3 pct.) and the Gulf States, all now pledged to participate in the embargo. Iran has been flooded with demands for its oil from the United States as well as from Japan, Western Europe and some Eastern European countries. While it has a quiet program of collaboration with South Africa which includes Iranian participation in

1. This is contrary to an exaggerated figure of three years in the British press, and other estimates, without substantiation, from other sources. The South African press is guessing at 6 months. The US Embassy in Pretoria estimates 6 months. When the author was doing previous researach on the SA oil industry, the figure most commonly guessed at by SA commentators was around 9 months at the most. This would make the reserves propor- tionately larger than any other country's, as far as these are known or estimated. 2. Estimate from both the South African Financial Mail (probably the most reliable source) and the London Financial Times.

Barbara Rogers, a consultant to the sub-committee on Africa of the U. S. House of Representatives and the U. N. Council on Namibia, has written extensively on southern Africa.

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the National Refinery at Sasolburg (Natref) and military cooperation,3 pressure has already been brought to bear by the Organization of African Unity 4 and it is unlikely that Iran would wish to make available any additional oil to South Africa beyond that contractually required for Natref. To increase the supply to South Africa would mean disappointing more powerful customers, and arouse strong criticism from the non-aligned bloc.

Assuming, then, that Iran does not increase its supplies, South Africa faces the loss of 75 pct. of its oil imports. Domestic production is limited to the expensive Sasol oil-from-coal process, which supplies only 7-8 pct. of total consumption and cannot be much enlarged. A second Sasol, at exorbitant cost, could take five years to develop.

Much will therefore depend on the oil companies operating in the white minority states. They will certainly feel pressure from these states to supply oil. Shell and BP are very prominent in oil distribution in South Africa and Namibia, as are Total of France and Mobil, Caltex, Exxon and other US companies. However, with rigid controls on the oil price, the profit margin in South Africa could well become sub- stantially less attractive than in Europe,. In addition, the companies concerned are already under scrutiny for their stake in the area, and if they cannot be sure of remaining unobserved may be reluctant to help out in areas of relatively minor importance which could affect major deals in West and North Africa and the Middle East. Nigeria, for example, is negotiating with Gulf over plans to process liquefied petroleum gas, and one of the remaining issues holding up the contract is the question of their future plans in Angola.5 Amoco has agreed to withdraw from prospecting in Mozambique, as a preliminary to receiving a concession in Tanzania.

South Africa may make strenuous efforts to obtain oil from Angola; however, the Portuguese Government can take only half of the Cabinda production, in terms of its contract with Gulf, unless there is a "severe national emergency" which requires Portugal to take more for its own needs. For South Africa to get any of the Cabinda crude (which is still not very suitable for South African refineries) would require Gulf unilaterally to break contracts for the supply of the US market - an unlikely prospect.

The Impact on Southern Africa

The southern African region depends to a large extent on the situation is South Africa itself. Rhodesia, for example, has been receiving only 6,000 barrels per day from the Mozambique refinery's

3. There are reports of a secret military agreement, reinforced by Iranian Navy calls at ports and the posting of the former Chief of Staff, Gen. Fraser, as Consul in Teheran. 4. Representations by the Secretary-General of the OAU to the Iranian Ambassador in Addis Ababa. 5. Information from a source in the Nigerian Ministry of Foreign Affairs.

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Barbara Rogers

spare capacity under the most favorable circumstances, while consumption is 17,000 b.p.d.; the rest has come from South Africa. Again, the attitudes of the international oil companies are important. Caltex, Mobil and Shell have all been named as suppliers to Rhodesia. The colony has suffered from gasoline rationing before, after UDI, but its economy is now considerably less adaptable after the cumulative effect of many years of partial sanctions, and especially the unhappy state of its railway network. The stronger guerrilla challenge is also a weakening factor, and South Africa's willingness to commit more of its forces and supplies to Rhodesia may be reduced as gas supply difficulties become apparent. Fuel r.ationing is once more a fact of life in Rhodesia as from February 1, and this has badly hit the tourist industry, with many South Africans being stranded in Rhodesia for lack of gasoline.6

Even if Portugal and the colonies were self-sufficient in oil, they would have little to spare. Reports of a "second Kuwait" discovery off Cabinda appear unfounded; the time has not quite arrived when a denial of an allegation by Gulf Oil constitutes proof of the allegation! 7

Refining of present Cabinda production - which has levelled off and will probably start declining quite soon - is a problem, since even official Portuguese sources admit that its high wax content and other features make it unusable in large quantities in Portuguese refineries.8 Cabinda oil is now going to Mozambique, but according to the South African press, the oil situation there deteriorated sharply in December, and was exacerbated by panic buying. 9 While the situation will probably improve, following consultations with "oil company officials of South Africa and Mozambique", certain difficulties are likely to remain so long as southern Africa as a whole is short of oil. The severity of the long-term outlook is indicated by the indefinite postponement of the project to build a lm. ton per year refinery at Nacala, because of the uncertain crude-supply situation; the group of companies involved included Mobil, BP, Shell and Caltex. 10 Meanwhile, Portugal itself is experiencing steep price in-

,creases of 65 pct. in two months, giving it Europe's most expensive gasoline. The increases are seen as conflicting strongly with the official view that oil supplies from Angola would enable Portugal to be self-sufficient without major problems.11

Given the serious disruptions and price increases, it is clear that Portugal could not afford to be any less well supplied than at present; 6. The Star, Johannesburg, weekly, January 19 and February 9, 1974. 7. This conclusion was reached on the basis of circumstances surrounding the original story's publication in London. 8. Portugal (Government of Portugal), December 1973, and independent sources. 9. Financial Mail, Johannesburg, December 14, 1973. 10. Platts Oilgram News Service, December 17, 1973. 11. The Star, weekly, February 9, 1974.

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it is therefore of concern that the United States has been reported to be supplying Portugal with some of the oil it needs, given the unusability of Cabinda crude, for the maintenance of its colonial wars, among other things. According to Bruce Loudon, a British journalist with good Portuguese Government sources:

"What is clear is that at about the time of the beginning of the Middle East crisis Gulf executives were in Lisbon. They left after a few days with smiles reported all round. Informed speculation is that as part of the Azores airlift deal the Cabinda oil is taken by the U.S. in direct exchange for crude that is more suitable for Lisbon's refinery needs. (This is already, to some extent, a requirement of the standing agreement between Gulf and the Portuguese Government). Hence Lisbon's confidence despite the reported threat of a "total trade boycott' by Arab countries."'12

To complete the record, Dr. Kissinger and the Portuguese foreign minister, were reported to have included in their recent discussions the Angolan oil and uranium resources, Portuguese African po1 cy, common action in the energy crisis, and the renewal of the A2 ares Base agreement.13 On his arrival in Lisbon from the Middle East, Kissinger stated:

I was reminded of the fact that Portugal stood by its ally in the recent difficulties, and the United States is extremely grateful for this. When visiting this country, that is known for its navigators, that explored the world with physical and moral courage, I would like to say that so far as the United States is concerned, our journey together is not finished. I bring greetings from the President to the leaders of Portugal and look forward to full, frank, and friendly talks and I know we will be even better friends than we are now. "1 14

The Effect on South Africa

In South Africa itself, Opposition leader Sir de Villiers Graaff suggested at the beginning of the crises that the oil reserves be used to avoid disruption to the economy. This was greeted with outrage by the Government, which insisted on the absolute necessity of keeping the reserves for military contingencies. It is therefore the economy which will be most directly affected by current supply levels.

The Standard Bank has pointed out that the embargo is likely to negate the mild rally which was beginning to emerge after some time of economic stagnation with inflation:

"The total embargo on Arab oil supplies to South Africa makes it im- perative to reassess the country's hitherto favorable economic prospects . .. a sharp reduction in oil supplies ... would result not only in a shortage of fuel but also in shortages of a large range of oil-based raw materials which could disrupt the country's complex industrial and distributive secors ... If the shortage of oil is protracted, previously optimistic forecasts of real economic growth will undoubtedly have to be scaled down considerably. " 15

12. Financial Times, London, November 28, 1973. 13. La Croix, France, December 19, 1973. 14. The Guardian, London, Decemoer 18, 1973. 15. "South Africa and the Oil Crisis," Standard Bank Review, December 1973.

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Barbara Rogers

This gloomy prognosis is repeated by commentators in the South African press.

Oil accounts for 25 pct. of South Africa's total energy needs, which is less than for other industrialized countries; however, the consumption of oil has been increasing very fast. 85 pct. of it is for the vital transport industry, and important sectors of the domestic economy as well as foreign trade and investment are being affected already by reduced supplies. Substantial numbers of workers, especially in the motor assembly plants, have already been laid off.

At the end of November, at the time of the Algiers decision, there was no fuel at all for light aircraft, due to the breakdown of an Iranian tanker. This points up the connection between oil supplies and military strength, since South African refineries do not produce this kind of fuel, and the thousands of privately-owned light aircraft, organized under the Air Commando system, are a vital element in the Government's counter-subversion tactics.

A shortage of lubricants was also felt immediately. Marine diesel and marine fuel oil have been in short supply, and some ships with low priority have been stranded; others no longer call there in the absence of guaranteed bunkering facilites. This in turn affects the sea-borne commerce which is so vital to South Africa's balance of payments; steep freight increases are also making South Africa's exports less competitive in its major markets. Industrial fuel is expected to be rationed soon, and full arrangements for rationing gasoline have been made. The premature election is seen by many as largely a preemp- tive measure to retain support for Nationalist Party before the rationing and economic disfunctions of the embargo become too severe and cut into electoral support.

Motor vehicles compete with the petro-chemical industry (in which there is a high concentration of foreign investment) for the light oil fractions, and the new plastics, explosives, fertilizer and other industries are in the first rank of those affected. The Federated Chamber of Industries estimated the crisis to affect 10 pct. of manufacturing industry immediately, with road transport particularly affected, resulting in a negative effect on almost all sectors of the economy, and boosting inflation. The railroads are already inadequate in the light of the projected increase in bulk mineral exports. The planned modernization with diesel engines to replace steam is being postponed. The major new Sishen-Saldanha line with new harbor facilities, which was dependent on tentative orders for iron-ore from Japan, could now be in question since the Australians are of- fering competitive terms and the added incentive of shorter distances, with less fuel therefore needed for shipping. In addition, the essential imports of capital equipment and machinery to keep industrial growth

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moving are likely to be cut back, and made more expensive, by the shipping difficulties.

As everywhere else, the rising price of oil will greatly aggravate domestic inflation; however, this is a specially dangerous problem in the South African context. The rate there is already among the highest in the industrialized world, and the mining sector is particularly susceptible to cost increases. There is also the possibility of even greater labor unrest as African wages fall further behind the cost of living. Strikes in the coal-mines, where some hundreds of workers have already been dismissed following labor disputes, could become more determined, along the British model, as workers there realize the strategic importance of their labor.

It is in the most modern, most capital-intensive and fastest- growing industries, such as petrochemicals and the motor industry, that the oil embargo will be felt most quickly; and it is here that recent foreign investment, especially from the United States, is concentrated. I recently asked a senior executive of General Motors how long the company would continue to operate in South Africa if it were making a loss. He pointed out that GM's profit margin is already almost negligible, and that "if this oil embargo is at all effective, then we certainly will make a loss. Then we'd get out immediately."

Press censorship prevents anything like full disclosure of the South African Government's situation. However, Cabinet Ministers, particularly Foreign Minister Muller, are very alarmed about South Africa's dangerously isolated position. Moreover, its oil difficulties cannot be remedied by a peace agreement in the Middle East. In fact, a Suez Canal reopening would adversely affect South Africa by ex- posing the myths of the "Cape Route theory"; only some super- tankers would continue to pass the Cape, and they do not even come within sight of South Africa, let alone stop there.

Optimistic politicans and commentators in South Africa are relying on the Western powers to provide oil supplies from their own sources. But appeals for Western "understanding" may conflict with the open attempts to use Botswana, Lesotho and Swaziland as hostages. As Vorster said recently, "Our neighbors are fully aware of the seriousness of the situation and precisely how vulnerable they are should the situation deteriorate.' '16

The public optimism in the South African Government about Western generosity may also be put into question by the fact that the West has continued to subsidize South Africa largely because it is seen as a profitable investment. A revised estimate of South Africa's long- term profitability and stability might come to the same conclusions as Vorster's, namely that reduced growth could threaten the whole structure of the apartheid system: "The greatest danger confronting South Africa is not so much the threat from outside her border, serious though that may be, but mass unemployment and disturbed race relations."1 6 16. Financial Mail, Johannesberg, April 24, 1970. 8



southern africa and the oil embargo

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