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International Socialism, May 1975


Bryan Rees

Oil: The Biggest Business


From International Socialism, No.78, May 1975, p.29.
Transcribed & marked up by by Einde O’Callaghan for ETOL.


Oil: The Biggest Business
Christopher Tugendhat & Adrian Hamilton
Eyre Methuen, £6.25

THE OIL industry is the biggest business in the world – there is nothing else like it. In financial terms its collective assets far exceed the GNP of most countries in the world; its profits are huge – in 1973 the biggest company in the world, Exxon Corporation, (it had to be an oil company!) made more profit than any other company in history – 2,440 million dollars!

This industry is dominated by a handful of companies, ‘The Big Seven’ (or ‘The Seven Sisters’ as they are known in the trade) – Exxon, Royal Dutch Shell, Texaco, Gulf, Mobil, Socal, and BP. The size of the ‘majors’ cannot be explained simply in terms that they are more efficient at producing and selling oil, or that they have greater technical expertise in oil matters. As E.T. Penrose says in his book, The Large International Firm in Developing Countries:

‘The story of the rise of the great companies deals as much with financial power, commercial and political negotiations and intrigue, with cartel agreements, marketing alliances, price maintenance agreements, price wars and armistices, mergers and combinations, actions to avoid taxes, and the national and international political interests of governments as it does with the economics of production and distribution.’ (p.182).

When it comes to the oil companies it is nonsense to talk of ‘the free play of market forces’ and ‘healthy competition’. For as Tugendhat amply demonstrates in the first half of the book, the industry has been characterised by cartels and price-fixing.

Take the Achnacarry Agreement of 1928. The bosses of Jersey Standard (Exxon), Anglo-Persian (BP) and Shell met at a remote hunting lodge in Scotland and decided that by combining their interests and sharing existing facilities they could maximise their profits from the fields they controlled and keep out other companies, price cutters and the like. Out of this came the Gulf-plus pricing agreement. The price of oil at every oil-exporting port in the world was to be fixed at the US Gulf coast prices. The final delivery cost would be the Gulf price plus the cost of delivery to the destination from the US Gulf coast, whether or not the oil came from there. Thus if India wanted to buy oil, the obvious place to buy was the Arabian Gulf, which was close at hand and where the oil was considerably cheaper than the US Gulf oil. But India had to buy the oil at US Gulf prices and pay a delivery price as if the oil had come from a US Gulf port. Not surprisingly then, when the Russians offered oil to India at 12 per cent below Gulf-plus prices, the oil majors organised an embargo to force India to deal with them. Not surprisingly the oil companies make huge profits. Not surprisingly oil producing countries, particularly the Arabs, felt hard done by. Not surprisingly the countries of the Third World remained ‘underdeveloped’, crippled and stunted by the activities of a handful of companies.

The second half of the book covers the period from 1960 to the present day. It is more detailed than the first half, and the language is technical and difficult.

The period from 1960 has seen ‘the revolution’ in the international oil industry, where the producer governments have taken the fixing of ofl prices into their own hands (as well as the control of production through participation agreements with the companies). The Yom Kippur War of October 1973 was a turning point in this process; oil was thrown to the centre of the political area, and the countries of the West who supported Israel knew it There was an embargo on supplies of Arab oil to Rotterdam and the USA; the participation agreements were thrown into confusion. But the companies carried on; while workers felt and paid for ‘the energy crisis’, the companies indulged in the most massive profiteering, switching cargoes of oil to countries who paid the highest prices, and sitting on oil in store while the price rocketed. As Hamilton says,

‘In between the two (producers and consumers) were the oil companies, enjoying the first really substantial surge in profitability in over a decade.’

What they lost in participation the companies gained in higher world prices which they themselves were forcing upwards.

For the rest we are treated to chapters on oil company profits (but with the fact that BP paid no UK income tax between 1967 and 1972 omitted), and several on alternative energy sources. Even there, the oil majors loom large, slowly becoming ‘energy corporations’, controlling sources of coal, gas, shale, even nuclear power. With the profits from oil at record levels, the transition to energy corporations should see profits as they have never been made before, not even in the oilmen’s wildest dreams.

It is not a conscious effort on either of the authors part to explain the oil industry in these terms. The history in the book is flat and detail in excess tends to obscure a clear analysis. Yet it is not possible to write about the oil industry without opening up some of the scars. Most books on the industry are written from a position of grovelling before the companies.

If you really want to know about the oil industry, then the excellent Empire of Oil by Harvey O’Connor (Monthly Review; out of print but your local library will be able to get it) and the Counter Information Services pamphlet, The Oil Fix (from CIS, 52 Shaftesbury Avenue, London Wl at 60p) are a better introduction. For, at £6.25 a copy, Oil: The Biggest Business will reach the shelves of your local library, but not a workers’ bookshop. Which is just as well because it is a lot of money to pay for only half the story.

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