THIS week I discovered an interesting International Monetary Fund webpage that provided a brief history of the oil crisis of the early 1970s. I quote from one of their pages:


“The fourth Arab-Israeli conflict broke out in October 1973. Over the next three months, the price of crude oil shot up 300%! Global energy and financial crises ensued.”
[1]

It was all very simple, according to the IMF. Anger towards the Netherlands and the Unites States because of their judged undue level of sympathy for Israel and also (as mentioned later) because the price of oil had not risen in line with other world commodities at the time.

This version is somewhat at odds with actual events, however. I was aware in the ‘70s that Western governments (in particular) justified the then huge spikes in the price of oil by repeatedly making the claim that world oil shortages existed and we’d all better get used to it.

Decades of wasteful energy consumption follwed. There was almost a complete lack of effort by government and industry to limit the public’s consumption of oil. I was left a permanent skeptic.

Many other people were suspicious of events even at the time.

Richard J Barnett and Ronald E Muller, writing in 1974 said:


“Between 1970 and 1973, even before the Arab boycott and the official proclamation of the Energy Crisis, the price for crude rose 72%. In some cases the price of natural gas has risen 200% since 1970….Although consumption in the United States has been cut back by government programs, blackouts, brownouts, service-station shutdowns, winter school closings, and rationing, demand, both US and worldwide, far outpaces available supply. This situation is a direct consequence of some of the structural changes in the world economy to which we have alluded. The decisions about production, pricing, research and development, and distribution in the energy field have been substantially in the hands of the global energy companies, the “seven sisters” – British Petroleum, Gulf, Mobil, Shell, Texaco, Exxon, and Chevron (Standard Oil of California). (Purely domestic energy companies account for approximately one-third of annual US energy consumption.) For many years Exxon and other global energy companies have been earning substantially higher profits abroad than in the United States. Because 300 billion barrels of the proved 500-billion barrel world oil reserves are in the Arab countries of the Middle East, the companies have been concentrating their development activities there. Because of their oligopolistic control over the world energy market, they have held the commanding power to decide how much oil is produced, where it shall go, the price to be charged, and where, through transfer pricing techniques, to declare their profits.

The power of the global energy companies in the US economy is based on a combination of special privileges, uniquely favourable oil concessions in foreign countries backed by the power of the US government in the name of “national security.”….[The major oil companies – the “seven sisters” have] near monopoly control of oil reserves, transportation, refining and marketing facilities…..Despite recent nationalizations and the rise of a few European and Japanese companies, 8 global companies, 5 of them US-based, still control 48 percent of world production and a degree of vertical integration and market sharing permitted no other industry. Immunity from antitrust prosecution has been justified on “national security” grounds….Because the petroleum companies have had near-monopoly power over production and distribution, they have, for much of the last generation, been able to set world prices at will. This explains, in part, their extraordinary profits….the annual rate of return on fixed assets invested in the Middle East rose from 61 percent in the 1948-1949 period to 72 percent a decade later….costs are much lower in the Middle East…..Because the information about oil reserves, real costs of drilling and distribution, and their own long-range strategies is in the exclusive hands of the companies, it is impossible to know the extent to which the celebrated Energy Crisis that began in 1973 is real or manipulated.

There is considerable evidence, as committees of Congress began to discover in 1974, that available supplies are far more ample than the long lines at gas stations and “crisis messages” from the White House would suggest. Indeed, fuel stocks in the US were at an all-time high in 1974….Some knowledgeable students of the petroleum industry such as former Occidental executive Christopher Rand and MIT professor Morris Adelman offer impressive evidence that there is no shortage of fossil fuels in the ground and that indeed, in Rand’s words, “the inventories of the world’s available fuel have been increasing rather than diminishing, even when measured against the annual rise in the rate of the world’s consumption.” The suddenness with which lines at gas stations appeared and disappeared, the puzzling display of sudden anger and sudden friendship from the Arab boycotters, and the quick jump in gas prices and oil-company profits all within a few short winter months in 1974 aroused widespread public suspicion that the Energy Crisis was stage-managed….The extent to which the crisis was the result of conspiracy may not be known until historians are given access to the oil companies’ equivalent of the Pentagon Papers….

The worldwide energy crisis is not a problem of absolute shortages of energy sources. It is a political crisis over who shall control these resources; who shall decide where, when, and how they are to be distributed; and who shall share in the enormous revenues….as Professor Adelman and other petroleum experts [argue] that there is no worldwide shortage of recoverable oil in the ground, but it is an academic point if those who control the reserves will not permit them to be exploited fast enough to meet rising demand. While the US-based oil companies now issue standard warnings about the Energy Crisis, they are engaged…”in a massive exercise in picking the pocket of the American consumer to the tune of billions a year.”[2]

In somewhat of an understatement Barnet and Muller observe that these extreme hikes in the price of oil had created a dollar glut. They say that this, “no less than the [so-called] scarcity of oil threatens the stability of the international structures for the creation and maintenance of wealth.” [3] Poor and oil-dependent countries - the first ‘subprimers’ were pushed into extraordinary levels of unsustainable debt in order to recycle this artificial liquidity glut of petrodollars. They defaulted in quick succession, more dollars were lent back to them and the global Ponzi game continued to our current financial and ecological breaking point.

Governments around the world became dependent upon another global cartel to be able to continue to pay for expensive oil. The bankers of Wall Street were the second powerful oligopoly exacerbating global imbalance. As Grazia Ietto-Gillies once stated, these “Multinationals are [and were] everywhere except in economic theories and economics departments.”

Brenda Rosser

[1] Reinventing the System (1972-1981)
https://www.imf.org/external/np/exr/center/mm/eng/mm_rs_01.htm
OPEC Takes Center Stage

[2] Richard J Barnet and Ronald E Muller, ‘Global Reach – the Power of the Multinational Corporations’ Simon and Schuster, 1974. Pages 218 – 224.

[3] Richard J Barnet and Ronald E Muller, ‘Global Reach – the Power of the Multinational Corporations’ Simon and Schuster, 1974. Page 226.