Oil has been used for a very long time. More than 5000 years ago, Sumerians, Assyrians and Babylonians took advantage of large seepages at Hit on the Euphrates. In the early centuries AD Arabs and Persians developed an interest in crude petroleum and its distillation into illuminants and it may be that this technique was carried to Western Europe from the 12th century onwards through the Arab influence in Spain. In North America the Indians used oil as a medicine and the early explorers found seepages in what are now the states of New York and Pennsylvania. Up to the start of the 19th century illumination in the United States and other industrially advanced countries was little better than that of the ancient Greeks and Romans. The increasing development of capitalist industry brought new needs for additional sources of oil. By the middle of the century kerosene or coal oil. derived by distillation of coal, was in common use and the need for yet cheaper and more convenient sources of lubricants and light grew more pressing. In 1859 in western Pennsylvania the first well specifically for oil was drilled. Before 1900 oil field discoveries in the United States covered 14 states and there were finds also in Europe and the Middle and Far East.
At the outset of the 20th century the use of refined petroleum and lubricants ceased to be of primary importance and the industry became a major supplier of energy. In 1980 oil and natural gas together supplied two-thirds of the world demand, with the use of approximately 80 million barrels a day. This does not mean that oil is a satisfactory fuel from an ecological viewpoint: it is a heavy pollutant and when it is burned many valuable chemicals are wasted. Such bad effects have to be really serious to figure in capitalist calculations, when cheapness, availability to the consumer and profitability to the producing interests are always the main considerations.
Reliable estimates about oil reserves and new resources are difficult to obtain because the relevant information is in the hands of the oil companies themselves. Where these firms are government owned, as is the general rule in so-called communist countries, such estimates can be state secrets. OAPEC have stated [1] that about half the known reserves in the Arab states have now been extracted. However, excluding unavailable figures for China, it was estimated in 1974 [2] that about 850,000 million barrels of oil remain to be found, 40 per cent behind the Iron Curtain. In the Soviet Union, Middle East, Canadian Arctic Islands as well as the unknown Chinese contribution these discoveries can be expected mainly on land; elsewhere the great majority will be offshore. There is still a lot of oil over which to fight.
It is because oil is such a vital source of energy that it poses considerable problems for capitalist administrators. The interests of those who profit from its production are clearly to obtain as high a price as possible, just as those who are users of petroleum products strive to keep their costs as low as they can. In such circumstances the state usually has to intervene to regulate the conflict in the interests of the ruling class as a whole, as happens with other important industries. In general, capitalist governments have found oil interests very hard to handle. The industry is vastly profitable, it very soon took on a multinational character, and its products can now be carried quite easily all over the globe. To try and straightjacket the industry might lead to an interruption of supplies which, even temporarily, could have serious repercussions. Also in many states, particularly in the Middle East, it is the producers who are the dominant, indeed virtually the only, capitalist interest.
This apparent lack of interest has led observers such as Anthony Sampson to state [3] that capitalist governments have evaded the problem of the control of the oil companies. It is true, and not particularly surprising, that at certain times oil lobbies have by corrupt means gained undue influence over capitalist governments. Such was the case in the United States in the 1920s when the Teapot Dome Scandal rocked Washington and probably contributed to President Harding's death in office. However, capitalist politicians all over the world are nowadays at their wits end to find a way to regulate the situation. To take a cricketing analogy, Sampson's insinuation is rather like accusing bowlers of not trying to get Geoffrey Boycott out because statistics show that he is rarely dismissed. Sampson deserves credit for the diligence of his research, but unfortunately suffers from the reformist delusion that capitalism can be made to work in the interests of the whole population. He does however state that “any agreement over oil implies a first step towards some form of world government". We shall return to this later.
The first big manifestation of oil politics occurred in the United States in the closing years of the last century. Many of its features are still to be seen today world wide. John D. Rockefeller, using mainly borrowed money, established himself in the refinery business and by 1870 had brought Standard Oil into being. He then combined with some of his competitors to fund a Central Association with himself as president. Such a combination of capitalist concerns to pursue a joint interest is known as a cartel. This provoked the producing interests to try to form a cartel of their own. Rockefeller's cartel was boycotted, and an agreement was reached to stop new drilling and sell as a fixed price. However the temptation to undercut each other proved too much, the bottom fell out of the market and Rockefeller had won. He was contemptuous of the efforts of the producers, explaining [4]: "The dear people, if they had produced less oil, they would have got their full price”. This success led to a number of refiners selling out to Rockefeller, giving his trust a monopoly. His success and that of other trust barons, however, alarmed other capitalist interests and eventually led Theodore Roosevelt's administration to use anti-trust legislation against him. Standard took the fight to the Supreme Court who ruled in May 1911 that it must divest itself of all its subsidiaries.
This exposed the difficulties cartels have in sticking together in face of competition between individual members. If these capitalist interests cannot maintain such limited agreements, how can we expect joint action on a global scale to take steps towards world government? Yet Sampson sees this as a necessary condition to control the oil industry. The Rockefeller example shows the cartels and trusts in turn provoking counter attacks by the state in the interests of the majority of the ruling class, although this took longer to come about than would probably be the case today. The crushing defeat suffered by the producers at Rockefeller's hands is less typical.
The United States were fortunate at that time in having their own native oil supply. Underwater exploration had yet to materialise. Britain and other West European countries had no supply of oil and, as World War I approached, were only too well aware of their vulnerability. Where, for example, was the Royal Navy to obtain oil? Attention was directed towards the underdeveloped parts of the world where the vital fluid was to be found. Burmah Oil, formed to exploit discoveries in Burma, produced an offshoot, Anglo-Persian, based on newly acquired concessions in Iran (then called Persia). Only three months before war broke out the British government, prompted by Winston Churchill, acquired a 51 per cent stake in this company, later renamed British Petroleum (BP). Eventually the American firms, unable to meet increasing demand from home supplies, were also forced to look overseas. Saudi Arabia was to become an American sphere of influence with an organisation called Aramco, jointly owned by four oil companies, to run the concessions. These new relationships, so similar to those between imperialist nations and their colonies, contained the seeds of future trouble. As native ruling classes developed in these territories, leading eventually to the formation of their own governments, so complaints began about the profits which the oil companies were making at "their expense”. These nationalists looked for ways to obtain a larger slice of the cake. Attempts by Mexico in 1938 and by Iran under Dr. Mossadeq in 1951 to nationalise “their” oil industries were eventually defeated because competing customers were able to combine and enforce boycotts. However, nationalist feeling in the oil producing countries continued to gather momentum and the stage was set for the formation in 1960 of the Organisation of Petroleum Exporting Countries (OPEC)
OPEC would probably have formed itself in any case, but the act was triggered by price cutting by Exxon (ESSO), one of the giant companies popularly known as the “seven sisters". They reduced their posted price by 10 cents a barrel in August 1960. The other six “sisters", although none too happy, eventually felt compelled to follow suit. There was an oil glut at the time and, as happens periodically, Russia was threatening to flood the market at discount prices. This cut helped to unite the producing nations. One month later, on September 9, representatives of five of them, who were at that time collectively responsible for 80 per cent of the world’s oil exports, met in Baghdad and OPEC was formed. Eventually membership grew' to 13 — Algeria, Ecuador. Gabon, Indonesia. Iran, Iraq. Kuwait. Libya. Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. From the start OPEC made it clear that they were, in the words of one delegate, "a cartel to confront a cartel”. [3] Their main object was to raise their revenues. The reaction of the oil companies was to encourage production outside OPEC, a situation which accelerated the coming of North Sea Oil.
OPEC's fortunes have fluctuated with the current state of the oil market, contrary to ideas that the industry is a "special case" somehow exempt from the normal operation of the forces of supply and demand. The oil glut persisted during the 1960s and OPEC was relatively ineffective. After an attempt by the Arab nations to impose an embargo following the Arab-Israel six-day war in 1967 had failed because the non-Arabs did not give their support, the Organisation of Arabian Petroleum Exporting Countries (OAPEC) was formed by the Arab states who nevertheless remained within OPEC. By the 1970s however things had changed. Demand for oil was running considerably ahead of previous forecasts, and the glut was subsiding. The Libyan crisis of 1970 was the first sign of this. Following the deposition of King Idris, Colonel Gadaffi's regime threatened 21 companies which held Libyan concessions that unless they raised the price paid to Libya he would sell oil to Moscow. There were now so many competitors in the field that the oilmen could no longer enforce the type of boycott which had toppled Mossadeq in 1951, and eventually they had to agree to a price increase of 76 cents a barrel.
The current slump has meant that such price rises could not he maintained. Demand for oil inevitably fell off. Sales of smaller cars picked up appreciably in the United States. The development of sources outside OPEC meant that the latter’s share of the market was declining. OPEC’s combined oil revenues [5], which were $275 billion in 1980, had declined to an estimated $205 billion in 1982. In April 1980 Japanese oil industry executives refused to pay the National Iranian Oil Company $35 a barrel. Iran was now only exporting 1.5 million barrels a day as opposed to 4 million under the Shah. Differences which had always existed within OPEC came to the fore. The main one was between those nations led by Iran, which have large populations and need money quickly, and smaller nations who can take a more relaxed, long term view. The latter are led by Saudi Arabia, with estimated reserves twice those of Iran. The Saudi oil minister and spokesman — Sheik Yamani, suave and Harvard educated — became a world figure in the 1970s and for many typifies OPEC.
The Saudi group need to retain trade into the next century. They were moderates on price in 1979-80 for fear that by going too high they might stimulate alternative energy projects which could drastically reduce their business. Now, while sharing the OPEC desire to avoid a price slump, they are restless about the restrictions on production required to underpin the price. In contrast the Iran-led group have claimed that the high price is good medicine for the importers because it forces them to practice conservation and look for other sources of energy [6]. Equally hypocritical is the claim by OAPEC [7] to be acting in the interests of non-oil Third World countries. The lie to this is given by figures showing [5] that OPEC’s current account surplus rose to around $110 billion in 1980. A fraction of this surplus was invested in less developed countries, but a large slice was added to bank deposits. The Saudi led group at OAPEC has always found difficulty in finding profitable investment channels for its massive oil income. Despite the trappings of wealth Saudi Arabia remains a backward area which still punishes petty "theft" by cutting off a hand, in a ceremony largely unchanged since the days of Mahomet.
The term “price war" has been used almost exclusively for periods of price cutting such as the present. The current round started in February, when posted prices in the United States were marked down by about $2.50 a barrel, and non-OPEC Russia and Egypt reduced export prices. The British National Oil Corporation, a government owned body set up to deal with British North Sea Oil. then cut its price by $3 to $30.50 a barrel. An OPEC meeting in January having failed to agree. Nigeria unilaterally reduced its price by $5.50 to $30 a barrel. This was the background to the London meeting of OPEC in March which eventually produced a fragile looking deal under which prices were cut by $5 a barrel and a production ceiling of 17.5 million barrels a day was set. The immediate outlook for OPEC is far from rosy. Its fortunes will clearly continue to follow market fluctuations and serious splits, perhaps withdrawals, are likely.
Many workers foolishly believed that the discoveries in the North Sea heralded a cheap oil bonanza for everyone in Britain. In fact there was no chance of the working class gaining any benefit. Even if prices did go down sharply, this would have effectively reduced the price of labour power and thus led to a corresponding reduction in wages. Only the owning capitalist class can benefit from North Sea Oil, and their reaction has been mixed. British industry’s need for cheap energy remains but the ruling class are now also in the oil exporting business. Rising oil prices were held responsible for an upward surge by sterling on the exchange markets, hitting other British exporters. This prompted the famous comment by British Leyland's Michael Edwardes that if North Sea oil caused such problems it might be better to "leave the bloody stuff where it is". On the other hand there are obvious benefits for the capitalist class in being self supporting in oil, even if only temporarily. At the moment 26 fields are operational in the North Sea [8]. Another 30 are discovered but future developments are uncertain owing to high operational costs and low recoverable resources. The general fall in oil prices is a further disincentive. It is expected that North Sea oil production will tailback after 1986.
Gross exchequer revenue from North Sea oil is about $7 billion. 6.4 per cent of total central government taxes. Capital intensive projects such as oil exploration and the development of alternative energy sources are based on certain assumptions about future prices and a slump can destroy their commercial viability. However, BNOC is under some pressure from customers who have not yet finally accepted their new price, hoping for further reduction. There are renewed reports [9-10] of Russian oil being dumped on the market. It looks as though the downward pressure will continue for a while yet, with an uncertain outlook for British North Sea oil.
E. C. Edge
REFERENCES
[1] Organisation of Arab Petroleum Exporting Countries (OAPEC) Bulletin, Vol. 8, No. 7. July 1982.
[2] Encyclopedia Britannica, 1974 Edition.
[3] Anthony Sampson: The Seven Sisters, Hodder and Stoughton 1974.
[4] Ida M Tarbell The History of the Standard Oil Company. New York, 1904. Vol.1.
[5] Unsigned article "The Implications of Cheaper Oil". Petroleum Economist, March 1983.
[6] Remarks by the Shah of Iran in 1973, quoted in Ref. 3. p259.
[7] Editorial in Ref. 1 entitled "Aid to the Developing World in Surplus Oil Market".
[8] Article by Alexander G. Kemp and David Rose (University of Aberdeen) in Petroleum Economist, March 1983.
[9] Rod Chapman (Energy correspondent), The Guardian. 9 March 1983.
[10] Roland Gribben (Business correspondent), The Daily Telegraph. 23 March 1983.
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