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From International Socialism (1st series), No.65, Mid-December 1973, pp.16-17.
Corrected in accordance with Note to Readers in IS 66, February 1974.
Transcribed & marked up by Einde O’Callaghan for ETOL.
BY ANY standard oil is the world’s biggest business. Standard Oil New Jersey is the biggest company in the world after General Motors, Mobil is the sixth biggest, Texaco the eighth and Standard Oil California the 12th. Royal Dutch Shell is the biggest non-American firm, and it and BP are far bigger than other British companies.
That the oil companies have been able to reach such dominance, operating virtually independently of national governments and with tentacles everywhere, is a reflection of the business methods they have traditionally used. Competition has rarely been a feature of the industry.
In 1928 the chiefs of Shell, Standard Oil New Jersey and Anglo-Iranian (now BP) met to avoid ways of avoiding costly competition following a particularly vicious price war in India. The outcome was a tidy little arrangement under which market shares were mapped out, production levels agreed and a world price structure laid down. These arrangements were later extended to the other major international companies, Gulf, Texaco, Mobil and Socal. These seven sisters became, and have remained, inextricably intertwined, their interests closely bound up in joint producing, refining and marketing operations throughout the world. Between them they control 80 per cent of oil production outside the US and Russia, and 90 per cent of Middle East production.
The price-fixing scheme worked out in 1928 was extremely simple and extremely profitable. The price of oil was determined by the price of crude in Texas, plus standardised freight charges from the Texan ports to the port of destination. In this way the companies protected their oil interests in the US, while ensuring that the profits on Middle East oil, which is much cheaper to produce, were phenomenal. So. for instance, before the present crisis, the price of oil from the Persian Gulf was 2.50 dollars a barrel but production costs a mere 10 cents a barrel.
It has been estimated that between 1945 and 1960 the major companies shared profits of 9,000 million dollars on Middle East oil production. And in the early years the royalties paid to the producing countries were minute. In 1947 Anglo-Iranian paid only £7 million to the Iranian government, yet the British government was getting up to £50 million a year from its 49 per cent holding in the company.
THE oil companies would never have been able to pump wealth out of the Middle East on such a scale, had it not been for the direct support of the western governments, particularly the British government, which used to dominate the Middle East.
When the first agreements between the oil companies and the local states were reached much of the area was directly ruled from London: Iraq was a mandated territory under British rule, the Gulf states – Bahrein, Omar, Qatar, Abu Dhabi and so on – were British protectorates, with a British military presence, and British influence in Iran was sufficient to cause the replacement of the Shah in 1941. When direct colonial rule ended, a political set-up extremely favourable to the oil companies emerged. Much of the oil was concentrated within the territory of minute sheikhdoms which could never have survived independently without the aid provided by the oil companies and the British military presence – even today most of their armed forces are officered from Britain and RAF planes operate against rebels in Dhofar.
To preserve their control, the western powers have insisted that existing political boundaries are sacred – and backed this up by stationing the US Sixth Fleet in the Mediterranean, keeping the British military presence on the Gulf, supplying arms to ‘friendly’ rulers, and pumping massive amounts of aid into Israel. Direct military intervention has also been used – to preserve the status quo. For instance, after the overthrow of the pro-British monarchy in Iraq in 1958, US marines flew into Lebanon, presenting a clear threat to the new Iraqi government if it nationalised the oilfields.
On other occasions less direct methods were available: when the nationalist government of Mossadeq tried to nationalise Iranian oil in 1950, the western governments and the oil companies jointly enforced an embargo on Iranian oil until the government was virtually bankrupt and then used the CIA to organise a coup.
THE MASS of the Arab peoples have never gained anything from a political set-up that has been so advantageous to the oil companies and the western governments.
Regimes such as those in Iran and Saudi Arabia have expended their wealth on virtually anything but the advance of their people. It was estimated that in 1959 only 15 per cent of Iran’s £250 million oil revenues were used to raise the standard of living of the population. In the case of Saudi Arabia, £25 million was spent in the mid-1950s building a single royal palace, while the mass of the people continued to live at or below subsistence level.
The rulers of statelets such as Kuwait or Abu Dhabi have so much wealth at their disposal that they do not know what to do with it. Even if the rulers improved the living standards of the population under their control, they would still have massive funds left over. These they invest in the western stock exchanges – the ruler of Kuwait has 1839 million dollars invested on western stocks and shares – and would like to buy up whole industries in the west if the western powers would let them. They have no interest in using these funds to improve living standards in the Middle East generally.
So the Oil Minister of Saudi Arabia, which has fewer than eight million inhabitants, complains that an income expected to rise to 10,000 million dollars a year by 1980 ‘would constitute a serious problem’ – yet such a sum would be sufficient to nearly double the national income of the 45 million or so inhabitants of Egypt, Syria and Jordan combined. The present wealth of Kuwait, with its 700,000 inhabitants, would nearly double the national income of 10 million people in neighbouring Iraq.
Given such an uneven concentration of wealth, the rulers of the oil states feel compelled to build up large scale military forces. They need this to protect themselves both against their own population and against their impoverished neighbours. The result is a growing expenditure on arms which, while further impoverishing the Middle East, provides a ready market for British and American arms firms.
The Shah is now spending 2000 million dollars a year on arms – a figure equivalent to 28 per cent of Iran’s state budget. And earlier this year he made agreements to spend 720 million dollars on the most modern weapons from the US, including laser bombs. This is in addition to the 2000 million. 42 per cent of Saudi Arabia’s oil revenues for 1965-71 were absorbed either by ‘defence’ or by internal security. King Feisal also has been concluding some big arms deals this year – buying £250 million of arms from Britain and 500 million dollars worth from the US.
But while the oil monarchs worry about what to do with their wealth and spend vast sums on luxuries and military equipment, and while the oil companies continue to coin fantastic profits-the major oil companies made 8889 million dollars between them last year – the people of the Middle East subsist on very low level living standards. The average national income per head in each of the heavily populated Arab states is less than a fifth of that in Britain – and that includes the income of the middle and upper classes of Arab society.
What this means in terms of living standards can be seen by the following comparisons of average consumption of meat and milk – and these averages again include the consumption of the upper classes:
|
Grams per day consumption |
||
|---|---|---|
|
|
meat |
milk |
|
Iraq |
55 |
207 |
|
Saudi Arabia |
48 |
101 |
|
Iran |
37 |
164 |
|
Egypt |
36 |
— |
|
Britain |
209 |
592 |
THE IMMEDIATE cause of the present oil shortage has, of course, been the reaction of the oil sheikhdoms to the Middle East War. Cutting off some of the oil to the west has enabled them to buy popular support by making an easy gesture against Israel.
But this in itself does not explain the crisis. For during previous acts of aggression by the west and Israel, in 1956 and 1967, there were calls for an oil boycott. In neither case were they successful.
In 1956-57 the rulers of Bahrein and Kuwait tried to keep the oil flowing to the west – although their efforts were impeded in Bahrein by a general strike of oil workers. In 1967 Kuwait, Iraq, Libya and Saudi Arabia imposed an embargo but it was rendered ineffective by the action of Iran in stepping up production and the Trucial states in keeping their oil flowing. The Arab states, led by Saudi Arabia, were soon keen to lift the embargo.
What has made the cut-back in production so easy this time has been a shift in the balance of power between the oil producing states and the oil consuming states – in turn a by-product of the anarchic organisation of the world economy itself. The world boom of the past 18 months has caused a massive 8 or 9 per cent increase in the world demand for oil and the fastest growing source of oil is the Arab world – with the Middle East now producing 41.3 per cent of world output.
At the same time the US oil companies seem to have been deliberately holding back their domestic production. US output of oil and gas, which provide 80 per cent of American energy requirements, has not kept pace with rising demand. Natural gas prices are strictly regulated by the Federal Trade Commission and the oil companies have been holding its production down in order to force an upward revision in price. So industrial users have been switching from gas to oil.
But the production of oil has also been held back: oil output actually fell in 1971 and rose by a mere 0.1 per cent in 1972. Demand, on the other hand, shot up by a massive 7 per cent last year. Inquiries by the Federal Trade Commission and a senate sub-committee have suggested that the oil companies deliberately held down production in order to force oil prices up: once the price increases were agreed in February output immediately shot up, but too late to prevent shortages.
Against such a background, it is doubtful if the oil companies are over-worried by the latest production cuts and price increases being pushed through by the oil producers – and even the bitterest enemy of the Arabs in the Middle East, Iran, has not been slow to raise its prices. The long-term prospect of the price of oil doubling or even trebling means that the companies will be easily able to recoup on the reduced sales by increased profit per gallon.
The shortages have already given a welcome boost to their efforts to overcome the environmentalist lobby’s opposition to an expanded search for oil within the US itself – for instance, enabling them at last to defeat Congressional opposition to their Alaska pipeline bill.
A CENTRAL PART in the present propaganda campaign about the energy crisis is played by the notion that it is something removed from the basic class differences within society: if not an act of God, at least an act of King Feisal about which there is little anyone can do.
But in fact the pattern of energy consumption reflects the basic structure of society. A forthcoming study of the American economy [1] examines the extent of ‘waste production’ – waste production is production other than that which serves to expand production further, either by maintaining productive workers or by directly expanding the productive machinery. It concludes that no less than 57 per cent of US oil and gas consumption is by waste industries.
The most significant waste industry is the military sector, which absorbed 10.7 per cent of oil and gas output. Another 15.5 per cent went on such non-productive activities as advertising, finance, insurance, real estate, rental and business services.
On top of this was to be added the consumption of those who perform various policing and ‘law-keeping’ operations for the capitalist system – both as policemen and as supervisors and so on in industry: these added 18.3 per cent to the total waste of oil. Finally personal consumption by the capitalists themselves accounted for no less than 11.2 per cent of oil.
But capitalism is wasteful in a wider sense even than that considered in the study. In the ‘productive’ sector of the economy massive waste of energy occurs – when goods go by road that could go by rail or when workers are compelled to drive their individual cars to work through the inadequacy of public transport.
1. Waste: US 1970, by Michael Kidron and Elana Gluckstein.
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