Gulf States Aim to Squeeze More Profit From Oil. Controlling oil from well-head to gas pump fattens the bottom line. MOVING DOWNSTREAM

INVESTMENTS by Gulf oil states in refining and marketing assets in the United States, Europe, and Asia are changing the face of the world petroleum industry. These moves raise questions about what oil markets will look like in the 21st century. The US Congress, for instance, is concerned that national security could be threatened as a result of US dependence on foreign supplies from increasingly powerful national companies in the Gulf.

Oil company officials and market analysts in the Saudi capital are aware of such concerns. But they say the Gulf states' ``downstream'' investments in foreign refining and marketing facilities are giving long-term energy stability in the West by establishing direct interrelationships between producers and consumers.

``It actually contributes to US security because it gives a producing nation an interest in the US economy,'' a Western diplomat says.

Some analysts argue that the new investments will virtually eliminate the prospect of future Arab embargoes like the one prompted by US military assistance to Israel during the 1973 war with Egypt. ``It takes away the strategy of using oil as a weapon,'' an oil company executive says. ``It would be difficult and costly to use it against a market in which you have an interest.''

``We in no way will play around with this. We have never done that,'' says a senior Saudi official, discussing recent Saudi investments that are petroleum-related in the US. ``It is more a guarantee (of long-term Saudi supplies) to the US,'' he stresses.

Many analysts here maintain that national, fully integrated companies run by Saudis or Kuwaitis will operate in much the same way that the US and European oil majors do, guided more by the bottom line than politics. And they stress that they will be subject to the same laws, controls, and market forces.

Historically, the Gulf states have been involved primarily ``upstream,'' exploring for and producing crude oil. They sold their output to international companies who did the refining and marketing in Europe, Japan, and the US. This basic relationship began shifting in the early 1980s as the Gulf states increasingly moved to control their oil from the well-head in the desert to the gasoline station on Main Street, USA.

The advantages to the Gulf states are many. At a time of glutted world markets and tough competition, the Gulf states see such acquisitions as a guaranteed outlet for their oil. In addition, because gasoline prices don't fall as quickly as crude prices, downstream investment helps insulate the Gulf producers from prolonged weak crude prices.

The push downstream isn't unique to the Gulf states. Venezuela, Mexico, Libya, and Norway have made similar moves. But what is unique to the Gulf is the concentration of more than 60 percent of the world's proven oil reserves under only five nations (Iran, Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates). Analysts note that as world reserves are drawn down in the US, the Soviet Union, and elsewhere, the Gulf states and their national companies will become more important on the world stage.

``Nothing will keep it from happening,'' says an experienced Gulf analyst based in Washington.

``It is like the Seven Sisters under a different guise,'' adds a Riyadh-based economist, referring to the major international oil companies that once dominated the business. ``I personally doubt that in the medium term the Gulf producers will ever be as powerful as the Seven Sisters in the 1950s and 1960s.'' He adds, ``In the short term I don't see them that powerful at all. They don't have the market clout.''

An executive with a major oil company agrees. ``I don't think there will ever be a total replacement'' of the major Western companies, he says. ``It will be more living alongside one another. To a degree it is already happening now.''

The ``Sisters'' of the late 1990s and beyond are expected to include originals Exxon, Shell, and British Petroleum. Expected to join are two new heavyweights: the Kuwait Petroleum Corporation and the Saudi Arabian Oil Company, the world's largest producing entity. To a lesser extent the United Arab Emirates (UAE) may also be part of the club, oil analysts say. And at some point in the longer term, Iraq and Iran may also begin to move downstream.

``Access to crude oil will be the key,'' says an oil executive. ``Those companies and countries with large oil reserves will be well placed.''

The most recent example of expansion downstream is Saudi Arabia's acquisition of a 50 percent stake in three US refineries and 11,400 service stations operated by Texaco in the eastern and southern US. The refineries will process 600,000 barrels of Saudi crude per day.

The overall deal, which took effect Jan. 1, is expected to earn $1.8 billion for cash-strapped Texaco. The funds will help Texaco settle its multibillion dollar lawsuit with Pennzoil. It will also help the company fend off feared takeover bids.

In return, the Saudis gain a guaranteed market for 600,000 barrels per day (b.p.d.) of its crude at world prices. And, more significantly, for the first time they have their foot in the door of the highly lucrative US market.

``We are getting a huge slice of a very large market,'' a Saudi government official says.

The current move downstream by Gulf producers comes five years after Kuwait's pioneering investment there. In 1983 the Kuwaitis took advantage of the break up of Gulf Oil Company by snapping up its European assets, including two refineries in the Netherlands and Denmark and a 75 percent interest in a third refinery in Italy. In addition the Kuwaitis now own a network of more than 4,000 gas stations in Western Europe.

That was only the beginning.

In January 1988, Abu Dhabi, the largest of the United Arab Emirates, purchased a 10 percent stake in the Spanish refining company Cia Espanola de Petroleos SA. The $128 million deal gained a guaranteed market for 60,000 b.p.d. of crude from the UAE and two seats on the board of directors. Abu Dhabi is considering raising its stake to 20 percent.

Meanwhile in Asia, Saudi Arabia is planning a $1 billion refinery joint venture with Japan, to be built in Indonesia. A first phase calls for a capacity of 250,000 b.p.d., with 200,000 b.p.d. to be provided by Saudi Arabia. The second phase would double those figures. No details have been released on how or where the refined products would be marketed.