From Socialist Worker Review, No.87, May 1986, p.8.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
WHAT is it that wrecked the British budget, caused riots in Delhi, sent the pound down and British inflation up, saved the advanced industrial group of countries some 50 billion dollars a year, bankrupted about 2,000 of the wild-catters in the Texas oilfields, and pushed to the wall Nigeria, Mexico and Venezuela?
What was amazing about the precipitate fall in oil prices was not that the fall took place but that we should all take it for granted that the world could be turned topsy-turvy by what appears as an act of God (Mammon rather than Jehovah).
The oil price decline has another significance. Thirteen years ago, OPEC made its first attempt to recapture some of the lost value of its crude oil. Between 1950 and 1973 when the prices of manufactured goods increased enormously, the price paid for a barrel of oil was held obstinately by the oil companies at under two dollars. When the price was pushed up, world slump was blamed on the oil producers (in fact, slump began much before the increase in oil prices).
Out of the academic woodwork came a host of experts to cry doom: energy was running out, the fragile world was crumbling, we were to be punished for our greed and materialism.
Further out was a nastier version: with finite resources, there was room in civilisation for only a few, a lifeboat’s-worth, so most of the Third World must be prevented from developing (or trying to climb on board).
There were those on the left who produced the mirror image of the gloom merchants. They rejoiced that at last capitalism was getting its come-uppance, and without anyone having to lift a finger. In the declarations of OPEC they heard the trumpets of the legions of the Third World sounding the triumph of liberation.
At last OPEC had proved capitalism could be beaten – by forming a cartel and fixing the price of raw material exports high, any poor country could begin to shift resources away from the rich countries.
The fact that the representatives of the poor were in no way anti-capitalist, that they included the King of Saudi Arabia, the Shah of Iran, the Emir of Kuwait, did not affect the argument. The monarchs were the unconscious instruments of a wider purpose. They could not behave but in a manner to speed the emancipation of the Third World.
What a change there is now. The King of Saudi Arabia and the Emir of Kuwait plead with Mrs Thatcher to stop scooping the OPEC market by letting prices fall. Sheikh Yamani appeals to Mexico’s president to do the same. With a price that has fallen from 1979’s 34 dollars per barrel (and 40 dollars for Nigeria’s Bonny Light crude) to fifteen in February, Venezuela bravely urges it be fixed at $17.25.
Algeria, Iran and Libya, the radicals mind you, offer a scheme to cut production in order to hold the price at $16; but what OPEC sacrificies by self-control, Britain, Mexico, the US and Russia will claw back by picking up the vacated demand.
Nigeria, leap-frogging from one coup to another in the attempt to escape the axe, and Iraq, burning money in its unwinnable war, both insist that within OPEC they should have a bigger share.
Saudi Arabia and the Gulf sheikhs, weary with the squabbling, and controlling the largest supply, yet with the lowest demand for ready cash, hint that they will flood the world with crude to bankrupt the British and the Mexicans, taking the price down to $10.
At that price only the Saudis and the Gulf States could cover their costs, so not only would they push out the British, they would break OPEC. It is a Samson in the temple trick.
The price hovered nervously about $15 on the Rotterdam spot market not because of the British and the Mexicans. Nor because there has been any conspiracy of the industrial powers. They no more control the price of oil than anyone else. The decline is there because of the slump, the downturn in the United States economy that has pulled down much of the rest of the world.
Almost all commodity prices – and interest rates – have fallen. And oil has not by any means fallen furthest. Look at the performance of sugar. That sank well below the costs of production, producing starvation in the sugar island of Negros in the Philippines.
The OPEC price increase in the seventies not only vastly increased exploration – so making profitable the high cost oil of the North Sea and Alaska – but it produced a drive to more economical use. Consumption in the West has fallen by 11 percent since 1979. Thus, to the effect of economies has come slump, and the world is now dogged by considerable overcapacity.
Far from raw materials running out and energy coming to an end, oil is now in hopeless over-supply leading to the shutting down of marginal wells and the suspension of exploration. There was no physical shortage nor could governments manipulate it. It was the market that produced both the scarcity and the glut.
However, the triumph of the market over reformist ambitions is little consolation to those most victimised. The British can get by. But Mexico and Nigeria are being squeezed.
At $27 per barrel, Mexico earned up to $17 billion from the export of crude and its derivatives. The decline in the price has halved the country’s estimated revenue this year, so that it can no longer meet the interest payments on its $100 billion debt to foreign banks and governments.
Thus, on top of the collapse of 1982, a new one is now threatened. Mexicans have been squeezed for four years – wages have been cut by nearly a half for those with jobs (the Mexican peso is now worth a twelfth of its dollar value of 1982).
In February the government was obliged to cut $8.68 off the barrel price of its exports just to keep its markets. The decline in revenue forces more cuts in imports and generalised domestic deflation – a slump on top of a slump.
The price decline has demolished what was left of the myth of OPEC. It was fostered in the West as an explanation of the slump of 1973-4 (and to a lesser extent, that of 1980-1). It was never very plausible since, important though oil is, its pricing cannot determine the global system at all.
Nor was OPEC decisive. For in the late seventies over half the world’s output was controlled by just three powers, two of them not in OPEC – the Soviet Union, United States and Saudi Arabia.
But the myth of OPEC did sterling service in providing a scapegoat to deflect attention from the inherent nature of capitalism. The myth can now be retired from duty. Watch out for the next ‘explanation’ of difficulties.
Last updated: 10 April 2010