Politics and World Oil Economics: An Account of the International Oil Industry in Its Political Environment

By J. E. Hartshorn | Go to book overview

CHAPTER XVII
Consumers in the Market Place

T he less a Japanese oil importer pays for his oil, the more foreign exchange he gets to buy it next time. Japan has a tight control on foreign currency for imports, as a result of continuing balance of payments difficulties during recent years. It also has the fastest rate of growth in oil consumption of any comparably developed industrial country. Up to 1962 its Ministry of Trade and Industry (MITI) allocated foreign exchange for the purchase of oil, mainly from the Middle East, partly in relation to how much each importer had spent in the previous three months, and partly in relation to how much oil he managed to buy with this money. Moreover, freight charges do not affect this: foreign exchange to finance transport seemed to be granted automatically. As a result, every Japanese importer was under extra pressure to get the lowest f.o.b. prices he could -- which means the biggest possible discounts off posted prices.

This, in recent years, Japanese importers have made notably successful efforts to do. Few other 'arm's-length buyers' have as regularly secured sizeable discounts -- varying in 1960-62 from about 15 to 30 cents a barrel, or 10-15 per cent below posted prices -- for Middle East crude oil. Moreover, the redoubtable Ministry of Trade and Industry makes public, regularly, details of the bargain prices actually achieved, pour encourager les autres. This has been fairly embarrassing for the oil companies posting these prices, who have to justify them as realistic to the governments of countries where their own associated refineries usually pay at posted prices for the oil that they import.

Publicity did not necessarily push these discounts down farther. The heaviest price-cutting usually takes place when it can be kept secret from all but the favoured few customers. Indeed, publication of these ' MITI reports' may possibly have helped to stabilize the level of discounts in the Persian Gulf for a time. Companies supplying Japan with crude have taken to offering special 'non-price' inducements such as

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