RUSSIAN OIL (IMPORTS) (Hansard, 25 February 1963)

§ Mr. Anthony Kershaw (Stroud)
I wish to call attention to unofficial suggestions which have been appearing in the Press that we should have a deal for Russian oil for the building of fishing or other vessels in this country. The first argument which is advanced by those who advocate the deal is that the oil would be cheaper than the oil we have ourselves. That is probably true, but I suggest that the invoice price only is not a factor which one ought to look at by itself. After all, we must reflect that our oil companies have invested over the past fifty years enormous, indeed gigantic sums in that industry.
Since 1946, there have been spent yearly no less than £50 million on the purchase of ships and about £125 million every 1047 year on goods and services by the oil companies in this country. Since 1946, the expenditure by the oil companies in this country alone has amounted to no less than £2,700 million. This is truly a goose which lays golden eggs and in so far as we deliberately damage this product it demands the most exact justification.
In so far as we damaged it we, in the first place, would reduce revenue from taxation. In the second place, we would damage employment and prospective employment in the oil industry of this country. Thirdly, we would damage, or, at any rate, weaken, the coal industry of the country. Those hon. Members on both sides of the House who have talked about this deal in favourable terms are certainly no friends of the miners.
There is, of course, no question that the shortfall in investment would be made good by the Russians themselves. The Russians propose not to invest anything at all but to ride in on the backs of others who have done so, and to dump at artificial prices oil which we do not want into a production system which Russia has had no part in creating and which she is doing her utmost in all parts of the world to undermine.
We must consider, also, the effect upon the royalties which the companies would be able to pay if their prospects were diminished in any way. After all, the host countries in whose territory oil is found are wholly, or partly at least, dependent on the revenue which they have from oil, and the reduction of these revenues has to some extent already and will certainly in the future have consequences harmful to the West.
Consider, for example, the case of Nigeria. There is today a surplus of fuel oil available in the world and the amount of fuel oil that we may expect from the Russian deal is, I understand, 2 million tons. It so happens that the amount of fuel oil which would be available to Nigeria to export is exactly the same amount, 2 million tons, so that it would not be straining the truth too far to say that in such a case we would be preferring Russian oil to Nigerian. Who, after all, should have priority in our affections in our commerce—Russia or Nigeria?
It is not, of course, the immediate effect of lower prices with which I am con- 1048 cerned. In the long term we realise that the exploration and exploitation of oil in the future depends upon the very high reserves being accumulated now, and, in so far as it becomes more difficult to accumulate these reserves, so also it becomes more difficult to explore and exploit these deposits in the future, with harmful effects, if that were to happen, both to the host countries and to ourselves.
But the impact of Russian price cutting in oil will not merely be financial; nor will it merely be commensurate with the comparatively small amount of oil which is involved at the present time. Psychologically speaking, the effects would be very far-reaching and would certainly be deplorable. Consider the position of the neutrals, who have, up to now, withstood to some extent the blandishments of the Russians, partly because they do not want to be too dependent upon the Russians for their oil, and partly because of the very heavy Western investment in distribution and other installations which they realise they might put at risk. But if we in this country started to import Russian oil, they would realise that they had no risk of forfeiting the investments in distributive processes and would certainly feel themselves perfectly free to import as much Russian oil as they required. Of course, the host countries who stand to suffer would doubt whether we were the friends that we say we are.
Then there are our European allies. I know there are other European countries who import Russian oil—some on a large scale. But their position is not the same as ours. They are not, except to a limited extent, producers of oil. Italy is a case in point. She imports about 18 per cent. of her requirements from Russia. When I saw Sgr. Mattei earlier this year he told me that the Italian policy was temporary only until the Italians, or E.N.I., could get from their own wells enough oil to satisfy their requirements.
I had the opportunity, as Rapporteur of the Economic Committee of the Council of Europe, to present a Report, which was unanimously adopted by the Council, which expressed great anxiety about the impact of Russian oil prices on the European economy. As the representative of a country which was not importing Russian oil, I was able to go to the discussion with clean hands, so to 1049 speak; but if, when the ink was hardly dry on the resolution, we should go back on the policy it would induce a certain cynicism.
Then what about the position of the United States? It is hardly necessary to say to my hon. Friend what the reaction of Congress would be. I was astonished to see it said in a leading article in The Times on Saturday last—otherwise well informed except on one point—that the American reaction may not be totally irrelevant. I find that the understatement of the year so far. Is it really possible that, at this time, after the collapse of the Brussels negotiations, when we are trying to inaugurate a new trading and tariff policy with the help of the United States, we could antagonise her without any reason? We should remember that at present we ban the entry of American coal into this country although it is only two-thirds the price of our own. Are we to ban American coal and let in Russian oil? If so, I think that it would be misunderstood.
It is true that the lower price of Russian oil would probably enable this factory or that which had it to lower the prices of its products. But I think that my hon. Friend will hardly call that argument in aid to any great extent because one can but reflect that Her Majesty's Government have it in their power to reduce the cost of energy in this country by a reduction of tax or by a change of energy policy by far more than the difference between Russian oil and ordinary oil at the present time. Moreover, so far as any enterprise is induced by lower Russian oil prices to change over from coal to oil, that is a blow at the status and prospects of our own miners.
It is also true that, if the deal comes off, we shall get orders for ships from the Russians, probably orders for small ships such as we are anxious to have. Incidentally, I should say that we have no orders yet. But let us remember the big ship orders as well. We have £50 million spent every year on tanker orders. At 31st December last year, no less than 58 per cent. of the ships being built or on order in this country were tankers ordered by the large oil companies and by others. That trade is certainly at risk in this deal.
It is urged that this is a once-for-all deal which will not be repeated. Per- 1050 haps that is true. But I point out that the most likely form in which it will come will be in the import of crude or fuel oil. For this oil to be dealt with permanent installations are necessary, and, permanent installations once having been established, it will not be a once-for-all deal, but will go on for some time. There is the possibility that we might make the oil companies handle it. That would obviate the necessity of having new permanent installations, but I am sure that my hon. Friend will consider that the oil companies already have contractual relations which would make it very difficult for them to do it.
My hon. Friend will consider, also, the deplorable effect upon the host countries which would hardly understand that their own oil companies, so to speak, were handling oil from which they received no royalty. It would certainly be extraordinary if a Tory Government were to inflict that sort of compulsion upon any part of our industry. It would be possible that the Navy could handle this oil, but I ask my hon. Friend to reflect upon the posture of the Navy which would be getting its capital weapons from the United States and its fuel from Russia.
There is only a small amount in question now. The Times, on Saturday, said that it was only 1 per cent. of the Anglo-Dutch production. But that is a totally irrelevant figure. That refers to the total sold all over the world. The correct figure would be 4 per cent. of the oil used in national consumption in this country. But even that would not be the real percentage because, if it is fuel oil, which it probably would be, the proportion is no less than 10 per cent., which is a substantial amount.
Would it stay even at that figure? I believe that it would be one only stage in a constant pressure. In India, the amount of Russian oil imported was very small to start with, but it is now substantial. In Ceylon, the amount of Russian oil imported to start with was small, but now our whole oil industry there is sequestered, confiscated and utterly ruined. This would be the thin end of a very large wedge.
I make clear that I favour trade with the East, not particularly because I believe that it makes us friends but because, since we are a trading nation, it makes us prosperous and it is to our general 1051 interest. But Russia has a very favourable trade balance with us already—£80 million to £40 million. Why should we swell that balance at the cost of a national asset of our own? The boot should be on the other foot: Russia should increase her imports from us.
Have we suggested that Russia should buy oil from us? After all, we buy and sell oil from lots of other countries, but we are able, with ordinary multilateral trading, to make trade in other ways. But if these barter deals are to be indulged in, there must be mutual advantage. There is no reason to take something we do not want in order to be able to buy extra from Russia.
I am not, in the matter of tariff policy, a narrow protectionist. But this is not economics, but politics. The fact that politics motivate Russia's case is shown in the prices that Russia charges. The price to be charged to us is less than 50 per cent. of the price they charge to some of their satellites. The political motive is clear. We must also look to the political effect. That will be to dismay or to anger our allies for marginal economic benefits. Finally, I do not claim such a deal is impossible, but we must realise that the short-term benefits really must be very large in order to outweigh the long term disadvantages.

§ The Parliamentary Secretary to the Ministry of Power (Mr. John Peyton)
I thank my hon. Friend the Member for Stroud (Mr. Kershaw) for raising this very important matter. I acknowledge his own interest in it and the part he played in the production of a very important Report by the Council of Europe which deals with this problem. I should, at the outset, remind him that as yet no firm decision has been taken on this matter. He will recollect the words of my hon. Friend the Minister of State, Board of Trade, on 12th February: The Soviet Government have not so far made any firm proposal far a specific transaction on these lines. The Russians have indeed made it clear that they are as much concerned with the terms of the tenders as with the question of oil sales. But if they do make such a proposal we shall be prepared to consider it on its merits even though this might involve the importation of a limited quantity of fuel oil."—[OFFICIAL REPORT, 12th February. 1963; Vol. 671. c. 161.] That is as far as it has gone.
1052 My hon. Friend will also take comfort from the words of my right hon. Friend the Prime Minister: … that we must make a decision on what seems to us, on broad commercial grounds, to be best for Britain."—[OFFICIAL REPORT, 12th February, 1963; Vol. 671, c. 1115. I am certain that my hon. Friend will find these words and those sentiments to be quite unexceptionable. He has adduced, in the course of his able speech, a number of very powerful arguments, the force of which I do not think the Government would feel disposed to challenge. The question remains: where lies the balance of the national interest?
The plain facts of this situation are that the Russians have been round visiting a number of yards making inquiries about different types of ships. We would, of course, like to build some ships which the Russians might like to buy on some terms. It is possible that those terms might include a requirement to purchase some oil. But before any such arrangements were made it would be incumbent upon the Government to give due weight to the arguments which my hon. Friend has quite rightly and properly raised.
My hon. Friend did well to remind the House of the very considerable and important investment that has been made by British oil companies both here and abroad. It is a remarkable fact that perhaps is not adverted to often enough that these companies sell overseas four times more oil than is used in the United Kingdom. This trade not only contributes in a very important way to our balance of payments, but also leads to large orders being placed here both for equipment and for tankers.
My hon. Friend drew attention to the effect of a decision to import Russian oil on our traditional suppliers, particularly countries of the Middle East which are wholly or largely dependent on oil revenues. He also suggested that other oil consuming countries might feel less inhibited about buying Russian oil themselves and tend to be less impressed by arguments which may have restrained them in the past.
I do not think that there would be any inclination on the part of the Government to challenge the validity of these arguments. It is clearly in our interests 1053 that the value of our overseas investments should be sustained. So, too, we must preserve between us and our traditional suppliers that substantial flow of oil which is vital to us both.
My hon. Friend went on to draw attention to the likely reaction in the United States. Could we, he asked, really justify the exclusion of American coal at the same time as we let in Russian oil? I think that it is fair, particularly in this context, to point out that America and other countries tend to look after their own interests, often in ways that are damaging to us. Shipbuilding subsidies, flags of convenience, and flag discrimination, have been, and are, considerable thorns in the flesh, but we are obliged, like them, to do what we sensibly can to relieve the plight of our shipbuilding industry.
I would not quarrel with the concluding words of the leader in The Times last Saturday: Russia may not offer oil on terms it would be sensible to accept. This does not mean there are no acceptable terms. In so far as it would cause people to turn from coal to oil, my hon. Friend is right in implying that any action which tended further to depress the price of fuel oil would make it even harder than it is now for coal to retain its present share of the fuel market. That is undeniable.
In this context, I think it right to remind my hon. Friend that no price or quantity has yet been discussed. It would be all too easy to be led merely by the volume of quite reasonable newspaper comment to the conclusion that a deal had been, or was about to be, made, whereas, in fact, all that has yet occurred is a series of merely exploratory noises.
My hon. Friend drew attention to the possibility that we might gain some small orders only to lose larger ones. I think that my hon. Friend rather concentrated attention on the possibility of us obtaining orders only for small ships. I do not think that this is the case. So far as I know there is no firm evidence to suggest that the Russians have confined their attentions to any class of vessel, small or large. There have been suggestions of this kind in the news- 1054 papers, but I do not think that there is any great weight of authority behind them.
It is true—and I think that one must admit this—that for a long, time the oil companies have been very good customers of our shipyards. Only recently four tankers were ordered by P & O on behalf of the Texas Oil Company in connection with the new Milford Haven refinery.
My hon. Friend has speculated on the longer-term possibilities. I have done my best, in reply, to indicate that even the short-term picture is very far from being clear, so I find myself in some difficulty in answering questions about longer-term possibilities. I do not want to follow my hon. Friend into any detailed consideration of the way in which the imports might be handled, and by whom they might be used, but there is one assurance which I would like to give him now, and that is that there will be no compulsion upon any oil company in the United Kingdom to handle these imports. It will be for the Government ultimately to balance the national interest if and when an offer is made.

§ Mr. T. H. H. Skeet (Willesden, East)
Would that involve a State selling agency?

§ Mr. Peyton
I must be allowed to make my own speech, if my hon. Friend will allow me.
I can best put it this way: it will be for the Government to balance the national interest, if and when an offer is made. I do not think that I can do much better than repeat at the end of my remarks the words I used at the beginning—the words of my right hon. Friend the Prime Minister—that we must make a decision on what seems to us, on broad commercial grounds, to be best for Britain. I believe that that is a principle upon which we can all agree. I do not believe that any policy which departed by one iota from that principle would be right, and would or should be sustained by the House of Commons.